Federal Register, Volume 71 Issue 92 (Friday, May 12, 2006)

[Federal Register Volume 71, Number 92 (Friday, May 12, 2006)]
[Rules and Regulations]
[Pages 27798-27939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4240]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 412

Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2007: Annual Payment Rate Updates, Policy Changes, and
Clarification; Final Rule

Federal Register / Vol. 71, No. 92 / Friday, May 12, 2006 / Rules and
Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1485-F]
RIN 0938-AO06

Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2007: Annual Payment Rate Updates, Policy Changes, and
Clarification

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final Rule.

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SUMMARY: This final rule updates the annual payment rates for the
Medicare prospective payment system (PPS) for inpatient hospital
services provided by long-term care hospitals (LTCHs). The payment
amounts and factors used to determine the updated Federal rates that
are described in this final rule have been determined for the LTCH PPS
rate year July 1, 2006 through June 30, 2007. The annual update of the
long-term care diagnosis-related group (LTC-DRG) classifications and
relative weights remains linked to the annual adjustments of the acute
care hospital inpatient diagnosis-related group system, and will
continue to be effective each October 1. The outlier threshold for July
1, 2006, through June 30, 2007, is also derived from the LTCH PPS rate
year calculations. We are also finalizing policy changes and making
clarifications.

DATES: This final rule is effective July 1, 2006.

FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487 (General information).
Judy Richter, (410) 786-2590 (General information, payment
adjustments for special cases, and onsite discharges and readmissions,
interrupted stays, co-located providers, and short-stay outliers).
Michele Hudson, (410) 786-5490 (Calculation of the payment rates,
LTC-DRGs, relative weights and case-mix index, market basket, wage
index, budget neutrality, and other payment adjustments).
Ann Fagan, (410) 786-5662 (Patient classification system).
Miechal Lefkowitz, (410) 786-5316 (High-cost outliers and cost-to-
charge ratios).
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted
stay, and transition period).
Nancy Kenly, (410) 786-7792 (Federal rate update and case-mix
index).

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
A. Legislative and Regulatory Authority
B. Criteria for Classification as a LTCH
1. Classification as a LTCH
2. Hospitals Excluded from the LTCH PPS
C. Transition Period for Implementation of the LTCH PPS
D. Limitation on Charges to Beneficiaries
E. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
II. Publication of Proposed Rulemaking
III. Summary of Major Contents of this Final Rule
A. Update Changes
B. Policy Changes
C. MedPAC Recommendations
D. Impact
IV. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications
and Relative Weights
A. Background
B. Patient Classifications into DRGs
C. Organization of DRGs
D. Update of LTC-DRGs
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
2. Maintenance of the ICD-9-CM Coding System
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
F. Method for Updating the LTC-DRG Relative Weights
V. Changes to the LTCH PPS Payment Rates for the 2007 LTCH PPS Rate
Year
A. Overview of the Development of the Payment Rates
B. LTCH PPS Market Basket
1. Overview of the RPL Market Basket
2. Methodology for the Operating Portion of the RPL LTCH PPS
Market Basket
3. Methodology for the Capital Portion of the RPL Market Basket
4. Market Basket Estimate for the 2007 LTCH PPS Rate Year
C. Standard Federal Rate for the 2007 LTCH PPS Rate Year
1. Background
2. Description of a Preliminary Model of an Update Framework
under the LTCH PPS
3. Update to the Standard Federal Rate for the 2007 LTCH PPS
Rate Year
4. Standard Federal Rate for the 2007 LTCH PPS Rate Year
D. Calculation of LTCH Prospective Payments for the 2007 LTCH
PPS Rate Year
1. Adjustment for Area Wage Levels
a. Background
b. Geographic Classifications/Labor Market Area Definitions
c. Labor-Related Share
d. Wage Index Data
2. Adjustment for Cost-of-Living in Alaska and Hawaii
3. Adjustment for High-Cost Outliers (HCOs)
a. Background
b. Cost-to-charge ratios (CCRs)
c. Establishment of the Fixed-Loss Amount
d. Reconciliation of Outlier Payments Upon Cost Report
Settlement
4. Other Payment Adjustments
5. Budget Neutrality Offset to Account for the Transition
Methodology
6. One-time Prospective Adjustment to the Standard Federal Rate.
VI. Other Policy Changes for the 2007 LTCH PPS Rate Year
A. Adjustments for Special Cases
1. Adjustment of Short-Stay Outlier (SSO) Cases
a. Changes to the Method for Determining the Payment Amount for
SSO Cases
b. Changes to the Determination of Cost-to-Charge Ratios (CCRs)
and Reconciliation of SSO Cases
2. The 3-day or Less Interruption of Stay Policy
B. Special payment provisions for LTCH hospitals within
hospitals (HwHs) and LTCH satellites
VII. Computing the Adjusted Federal Prospective Payments for the
2007 LTCH PPS Rate Year
VIII. Transition Period
IX. Payments to New LTCHs
X. Method of Payment
XI. Monitoring
XII. MedPAC Recommendations
A. Discussion of MedPAC's March 2006 Report to Congress:
Medicare Payment Policy
B. RTI Report on MedPAC's June 2004 Recommendations
XIII. Health Care Information Transparency Initiative
XIV. Collection of Information Requirements
XV. Regulatory Impact Analysis

Addendum--Tables

Appendix A--Description of a Preliminary Model of an Update Framework
Under the LTCH PPS

Acronyms

Because of the many terms to which we refer by acronym in this
final rule, we are listing the acronyms used and their corresponding
terms in alphabetical order below:
3M 3M Health Information Systems
AHA American Hospital Association
AHIMA American Health Information Management Association
ALOS Average length of stay
APR All patient refined
ASCA Administrative Simplification Compliance Act of 2002 (Pub. L.
107-105)
BBA Balanced Budget Act of 1997 (Pub. L. 105-33)
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L.
106-113)
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000
(Pub. L. 106-554)
BLS Bureau of Labor Statistics
CBSA Core-based statistical area
CC Complications and comorbidities
CCR Cost-to-charge ratio
C&M Coordination and maintenance
CMI Case-mix index

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CMS Centers for Medicare & Medicaid Services
CMSA Consolidated metropolitan statistical area
COLA Cost-of-living adjustment
COPS Medicare conditions of participation
CPI Consumer Price Indexes
DSH Disproportionate share of low-income patients
DRGs Diagnosis-related groups
ECI Employment Cost Indexes
FI Fiscal intermediary
FY Federal fiscal year
HCO High-cost outlier
HCRIS Hospital cost report information system
HHA Home health agency
HHS (Department of) Health and Human Services
HIPAA Health Insurance Portability and Accountability Act (Pub. L.
104-191)
HIPC Health Information Policy Council
HwHs Hospitals within hospitals
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification (codes)
IME Indirect medical education
I-O Input-Output
IPF Inpatient psychiatric facility
IPPS Acute Care Hospital Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare code editor
MDC Major diagnostic categories
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review file
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (Pub. L. 108-173)
MSA Metropolitan statistical area
NAICS North American Industrial Classification System
NCHS National Center for Health Statistics
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
PIP Periodic interim payment
PLI Professional liability insurance
PMSA Primary metropolitan statistical area
PPI Producer Price Indexes
PPS Prospective payment system
QIO Quality Improvement Organization (formerly Peer Review
organization (PRO))
RIA Regulatory impact analysis
RPL Rehabilitation psychiatric long-term care (hospital)
RTI Research Triangle Institute, International
RY Rate year (begins July 1 and ends June 30)
SIC Standard industrial code
SNF Skilled nursing facility
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-
248)
UHDDS Uniform hospital discharge data set

I. Background

A. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP [State Children's
Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals described in section 1886(d)(1)(B)(iv) of the Social
Security Act (the Act), effective for cost reporting periods beginning
on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: Specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (LOS) (as determined by the Secretary of
Health and Human Services (the Secretary)) of greater than 20 days and
has 80 percent or more of its annual Medicare inpatient discharges with
a principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in FY 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a per
discharge system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs while maintaining budget neutrality.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In a Federal Register document issued on August 30, 2002, we
implemented the LTCH PPS authorized under BBRA and BIPA (67 FR 55954).
This system uses information from LTCH patient records to classify
patients into distinct long-term care diagnosis-related groups (LTC-
DRGs) based on clinical characteristics and expected resource needs.
Payments are calculated for each LTC-DRG and provisions are made for
appropriate payment adjustments. Payment rates under the LTCH PPS are
updated annually and published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH
with a cost reporting period beginning on or after October 1, 2002.
(The regulations implementing the TEFRA reasonable cost-based payment
provisions are located at 42 CFR part 413.) With the implementation of
the PPS for acute care hospitals authorized by the Social Security
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the
Act, certain hospitals, including LTCHs, were excluded from the PPS for
acute care hospitals and were paid their reasonable costs for inpatient
services subject to a per discharge limitation or target amount under
the TEFRA system. Generally, for each cost reporting period, a
hospital-specific ceiling on payments was determined by multiplying the
hospital's updated target amount by the number of total current year
Medicare discharges. The August 30, 2002 final rule further details the
payment policy under the TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we also presented an in-depth
discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
budget neutrality requirements mandated by section 123 of the BBRA. The
same final rule that established regulations for the LTCH PPS under
part 412, subpart O, also contained LTCH provisions related to covered
inpatient services, limitation on charges to beneficiaries, medical
review requirements, furnishing of inpatient hospital services directly
or under arrangement, and reporting and recordkeeping requirements. We
refer readers to the August 30, 2002 final rule for a comprehensive
discussion of the research and data that supported the establishment of
the LTCH PPS (67 FR 55954).
On June 6, 2003, we published a final rule in the Federal Register
(68 FR 34122) that set forth the FY 2004 annual update of the payment
rates for the Medicare PPS for inpatient hospital services furnished by
LTCHs. It also changed the annual period for which the payment rates
are effective. The annual updated rates are now effective from July 1
through June 30 instead of from October 1 through September 30.

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We refer to the July through June time period as a ``long-term care
hospital rate year'' (LTCH PPS rate year). In addition, we changed the
publication schedule for the annual update to allow for an effective
date of July 1. The payment amounts and factors used to determine the
annual update of the LTCH PPS Federal rate is based on a LTCH PPS rate
year. While the LTCH payment rate update is effective July 1, the
annual update of the LTC-DRG classifications and relative weights are
linked to the annual adjustments of the acute care hospital inpatient
DRGs and are effective each October 1.
On May 6, 2005, we published the Prospective Payment System for
Long-Term Care Hospitals: Annual Payment Rate Updates, Policy Changes,
and Clarifications final rule (70 FR 24168) (hereinafter referred to as
the RY 2006 LTCH PPS final rule). In this rule, we set forth the 2006
LTCH PPS rate year annual update of the payment rates for the Medicare
PPS for inpatient hospital services provided by LTCHs. We also
discussed clarification of the notification policy for co-located LTCHs
and satellite facilities. The RY 2006 LTCH PPS final rule also included
a provision to extend the surgical DRG exception in the 3-day or less
interruption of stay policy at Sec. 412.531, as well as a provision
that clarified and modified existing notification requirements for the
purpose of implementing Sec. 412.532.

B. Criteria for Classification as a LTCH

1. Classification as a LTCH
Under the existing regulations at Sec. 412.23(e)(1) and (e)(2)(i),
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to
be paid under the LTCH PPS, a hospital must have a provider agreement
with Medicare and must have an average Medicare inpatient LOS of
greater than 25 days. Alternatively, Sec. 412.23(e)(2)(ii) states that
for cost reporting periods beginning on or after August 5, 1997, a
hospital that was first excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of its annual Medicare inpatient
discharges in the 12-month cost reporting period ending in FY 1997 have
a principal diagnosis that reflects a finding of neoplastic disease,
must have an average inpatient LOS for all patients, including both
Medicare and non-Medicare inpatients, of greater than 20 days.
Section 412.23(e)(3) provides that, subject to the provisions of
paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average
Medicare inpatient LOS, specified under Sec. 412.23(e)(2)(i) is
calculated by dividing the total number of covered and noncovered days
of stay of Medicare inpatients (less leave or pass days) by the number
of total Medicare discharges for the hospital's most recent complete
cost reporting period. Section 412.23 also provides that subject to the
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section,
the average inpatient LOS specified under Sec. 412.23(e)(2)(ii) is
calculated by dividing the total number of days for all patients,
including both Medicare and non-Medicare inpatients (less leave or pass
days) by the number of total discharges for the hospital's most recent
complete cost reporting period.
In the RY 2005 LTCH PPS final rule (69 FR 25674), we specified the
procedure for calculating a hospital's inpatient average length of stay
(ALOS) for purposes of classification as a LTCH. That is, if a
patient's stay includes days of care furnished during two or more
separate consecutive cost reporting periods, the total days of a
patient's stay would be reported in the cost reporting period during
which the patient is discharged (69 FR 25705). Therefore, we revised
the regulations at Sec. 412.23(e)(3)(ii) to specify that, effective
for cost reporting periods beginning on or after July 1, 2004, in
calculating a hospital's ALOS, if the days of an inpatient stay involve
days of care furnished during two or more separate consecutive cost
reporting periods, the total number of days of the stay are considered
to have occurred in the cost reporting period during which the
inpatient was discharged.
Fiscal intermediaries (FIs) verify that LTCHs meet the ALOS
requirements. We note that the inpatient days of a patient who is
admitted to a LTCH without any remaining Medicare days of coverage,
regardless of the fact that the patient is a Medicare beneficiary, will
not be included in the above calculation. Because Medicare would not be
paying for any of the patient's treatment, data on the patient's stay
would not be included in the Medicare claims processing systems. As
described in Sec. 409.61, in order for both covered and noncovered
days of a LTCH hospitalization to be included, a patient admitted to
the LTCH must have at least one remaining benefit day (68 FR 34123).
The FI's determination of whether or not a hospital qualified as a
LTCH is based on the hospital's discharge data from the hospital's most
recent complete cost reporting period (Sec. 412.23(e)(3)) and is
effective at the start of the hospital's next cost reporting period
(Sec. 412.22(d)). However, if the hospital does not meet the ALOS
requirement as specified in Sec. 412.23(e)(2)(i) and (ii), the
hospital may provide the intermediary with data indicating a change in
the ALOS by the same method for the period of at least 5 months of the
immediately preceding 6-month period (69 FR 25676). Our interpretation
of the current regulations at Sec. 412.23(e)(3) was to allow hospitals
to submit data using a period of at least 5 months of the most recent
data from the immediately preceding 6-month period.
As we stated in the FY 2004 Inpatient Prospective Payment System
(IPPS) final rule, published August 1, 2003, prior to the
implementation of the LTCH PPS, we did rely on data from the most
recently submitted cost report for purposes of calculating the ALOS (68
FR 45464). The calculation to determine whether an acute care hospital
qualifies for LTCH status was based on total days and discharges for
LTCH inpatients. However, with the implementation of the LTCH PPS, for
the ALOS specified under Sec. 412.23(e)(2)(i), we revised Sec.
412.23(e)(3)(i) to only count total days and discharges for Medicare
inpatients (67 FR 55970 through 55974). In addition, the ALOS specified
under Sec. 412.23(e)(2)(ii) is calculated by dividing the total number
of days for all patients, including both Medicare and non-Medicare
inpatients (less leave or pass days) by the number of total discharges
for the hospital's most recent complete cost reporting period. As we
discussed in the FY 2004 IPPS final rule, we are unable to capture the
necessary data from our present cost reporting forms (68 FR 45464).
Therefore, we have notified FIs and LTCHs that until the cost reporting
forms are revised, for purposes of calculating the ALOS, we will be
relying upon census data extracted from Medicare Provider Analysis and
Review (MedPAR) files that reflect each LTCH's cost reporting period
(68 FR 45464). Requirements for hospitals seeking classification as
LTCHs that have undergone a change in ownership, as described in Sec.
489.18, are set forth in Sec. 412.23(e)(3)(iv).
2. Hospitals Excluded from the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c) and, therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
Hospitals that are reimbursed in accordance with
demonstration projects

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authorized under section 402(a) of the Social Security Amendments of
1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or section 222(a) of the
Social Security Amendments of 1972 (Pub. L. 92-603) (42 U.S.C. 1395b-1
(note)) (Statewide all-payer systems, subject to the rate-of-increase
test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.

C. Transition Period for Implementation of the LTCH PPS

In the August 30, 2002 final rule, we provided for a 5-year
transition period from reasonable cost-based reimbursement to a full
Federal prospective payment based on 100 percent of the Federal rate
for LTCHs (67 FR 56038). However, existing LTCHs and LTCHs that are not
defined as new in Sec. 412.533(d) have the option to elect to be paid
based on 100 percent of the Federal prospective payment. During the 5-
year period, two payment percentages are to be used to determine a
LTCH's total payment under the PPS. The blend percentages are as shown
in Table 1.

Table 1
------------------------------------------------------------------------
Reasonable
Prospective cost-based
Cost reporting periods beginning on or payment reimbursement
after federal rate rate
percentage percentage
------------------------------------------------------------------------
October 1, 2002......................... 20 80
October 1, 2003......................... 40 60
October 1, 2004......................... 60 40
October 1, 2005......................... 80 20
October 1, 2006......................... 100 0
------------------------------------------------------------------------

D. Limitation on Charges to Beneficiaries

In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we
clarified that the discussion of beneficiary liability in the August
30, 2002 final rule was not meant to establish rates or payments for,
or define Medicare-eligible expenses. Under Sec. 412.507, as
consistent with other established hospital prospective payment systems,
a LTCH may not bill a Medicare beneficiary for more than the deductible
and coinsurance amounts as specified under Sec. 409.82, Sec. 409.83,
and Sec. 409.87 and for items and services as specified under Sec.
489.30(a) if the Medicare payment to the LTCH is the full LTC-DRG
payment amount. However, under the LTCH PPS, Medicare will only pay for
days for which the beneficiary has coverage until the short-stay
outlier (SSO) threshold is exceeded. (See section V.A.1.a. of this
preamble.) Therefore, if the Medicare payment was for a SSO case (Sec.
412.529) that was less than the full LTC-DRG payment amount because the
beneficiary had insufficient remaining Medicare days, the LTCH could
also charge the beneficiary for services delivered on those uncovered
days (Sec. 412.507).

E. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance

Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and Health Insurance Portability and Accountability Act (HIPAA) (Pub.
L. 104-191). Section 3 of the ASCA requires that the Medicare Program
deny payment under Part A or Part B for any expenses for items or
services ``for which a claim is submitted other than in an electronic
form specified by the Secretary.'' Section 1862(h) of the Act (as added
by section 3(a) of the ASCA) provides that the Secretary shall waive
such denial in two types of cases and may also waive such denial ``in
such unusual cases as the Secretary finds appropriate.'' (Also, see 68
FR 48805, August 15, 2003, implementing section 3 of the ASCA.) Section
3 of the ASCA operates in the context of the Administrative
Simplification provisions of HIPAA, which include, among other
provisions, the transactions and code sets standards requirements
codified as 45 CFR parts 160 and 162, subparts A and I through R
(generally known as the Transactions Rule). The Transactions Rule
requires covered entities, including covered providers, to conduct
covered electronic transactions according to the applicable
transactions and code sets standards.

II. Publication of Proposed Rulemaking

On January 27, 2006, we published the RY 2007 LTCH PPS proposed
rule in the Federal Register (71 FR 4648 through 4779) that set forth
the proposed annual update to the payments for the Medicare prospective
payment system (PPS) for inpatient hospital services provided by long-
term care hospitals (LTCHs) for the 2007 LTCH PPS rate year. (The
annual update of the LTC-DRG classifications and relative weights for
FY 2007 remains linked to the annual adjustments of the acute care
hospital inpatient DRG system, which will be published by August 1,
2006 and will be effective October 1, 2006.
In the RY 2007 LTCH PPS proposed rule (71 FR 4648 through 4779), we
discussed the proposed annual update to the payment rates for the
Medicare LTCH PPS, as well as other proposed policy changes. The
following is a summary of the major areas that we addressed in the
proposed rule.
In the proposed rule, we discussed the LTCH PPS patient
classification and the relative weights which remain linked to the
annual adjustments of the acute care hospital inpatient DRG system, and
are based on the annual revisions to the International Classification
of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes
effective each October 1. (See section IV. of this preamble.)
In addition, we proposed to adopt the ``Rehabilitation,
Psychiatric, Long-Term Care (RPL)'' market basket under the LTCH PPS in
place of the excluded hospital with capital market basket. (See section
V.B. of this preamble.)
We also proposed a zero percent update to the LTCH PPS Federal rate
for the 2007 LTCH PPS rate year instead of the most recent estimate of
the LTCH

[[Page 27802]]

PPS market basket. (See section V.C. of this preamble.)
In that same proposed rule, we discussed the proposed prospective
payment rate for RY 2007, and the applicable adjustments to the
proposed payment rates, including the proposed revisions to the wage
index, the proposed cost-of-living adjustment factors, the proposed
outlier threshold, and the proposed transition period budget neutrality
factor for the 2007 LTCH PPS rate year. We also proposed revisions to
the cost-to-charge ratio and reconciliation provisions as they apply to
LTCH outlier payment policies. (See section V.C. and V.D. of this
preamble.)
In addition, we discussed our proposal to revise the LTCH PPS
labor-related share based on RPL market basket and our proposal to
revise the labor-related and non-labor related shares of the Federal
rate based on the RPL market basket. We also proposed to postpone the
deadline for making the one-time prospective adjustment for the Federal
rate at Sec. 412.523(d)(3). (See section V.D. of this preamble.)
Also, we proposed to revise the existing payment adjustment for SSO
cases by reducing the part of the current payment formula that is based
on costs and adding a fourth component to the current payment formula.
We also proposed to sunset the surgical DRG exception to the payment
policy established under the 3-day or less interruption of stay
regulations at Sec. 412.531(a)(1). (See section VI.A. of this
preamble.)
For LTCH hospitals within hospitals (HwHs) and LTCH satellites, we
proposed to clarify at Sec. 412.534(c) that under the policy for
adjusting the LTCH PPS payment based on the amount that would be
determined under the IPPS payment methodology, we will calculate the
LTCH PPS payment amount that is equivalent to what would otherwise be
paid under the IPPS. We also proposed to codify in regulations the
general formula we currently use to give affect to the regulations as
they pertain to calculating an amount under subpart O that is
equivalent to an amount that would be determined under Sec. 412.1(a).
(See section VI.B. of this preamble.)
In the same proposed rule, we discussed our on-going monitoring
protocols under the LTCH PPS. (See section XI. of this preamble.)
In addition, we discussed the recommendations made by the Research
Triangle Institute, International's (RTI) evaluation of the feasibility
of adopting recommendations made in the June 2004 MedPAC Report. (See
section XII. of this preamble.)
We also analyzed the impact of the proposed changes presented in
the proposed rule on Medicare expenditures, Medicare-participating
LTCHs, and Medicare beneficiaries. (See section XIV. of this preamble.)
In Appendix A of the proposed rule, we presented a description of a
preliminary model of an update framework under the LTCH PPS that we may
propose to use in the future for purposes of the annual updating of the
LTCH PPS Federal rate in future years.
We received a total of 860 timely comments on the proposed rule.
The major issues addressed by the commenters included: The proposed
update framework; the proposed RPL framework; the proposed update to
the Federal rate for RY 2007; the proposed high cost outlier (HCO)
threshold for RY 2007; the proposed revision to the cost-to-charge
ratios and reconciliation provisions as they apply to LTCH outlier
payment policies; the proposed sunsetting of the surgical-DRG exception
to the 3-day or less interruption of stay policy; the proposed SSO
policy; the proposed postponement of the one-time prospective
adjustment to the standard Federal rate; the proposed clarification of
the present policy for adjusting the LTCH PPS payment for LTCH HwHs and
LTCH satellites; and discussion of the recommendations made by RTI.
Summaries of the public comments received and our responses to
those comments are described below under the appropriate heading.

III. Summary of the Major Contents of This Final Rule

In this final rule, we are setting forth the annual update to the
payment rates for the Medicare LTCH PPS, as well as finalizing other
policy changes. The following is a summary of the major areas that we
are addressing in this final rule.

A. Update Changes

In section IV of this preamble, we discuss the LTCH PPS patient
classification and the relative weights which remain linked to the
annual adjustments of the acute care hospital inpatient DRG system,
which are based on the annual revisions to the International
Classification of Diseases, Ninth Revision, Clinical Modification (ICD-
9-CM) codes effective each October 1.
In section V. through XII. of this preamble, we specify the factors
and adjustments used to determine the LTCH PPS rates that are
applicable to the 2007 LTCH PPS rate year, including revisions to the
wage index, the applicable adjustments to payments, cost-of-living
adjustment factors, the outlier threshold, the budget neutrality
factor, MedPAC recommendations and monitoring.
In section V.B. of this preamble, we are adopting the
``Rehabilitation, Psychiatric, Long-Term Care (RPL)'' market basket
under the LTCH PPS in place of the excluded hospital with capital
market basket. We are also revising the labor-related share (and non-
labor related share) of the Federal rate based on the RPL market
basket. (See section V.D.1.c. of this preamble).
As discussed in section V.C. of this preamble, we are implementing
a zero percent update to the LTCH PPS Federal rate for the 2007 LTCH
PPS rate year based on an adjustment to the most recent estimate of the
LTCH PPS market basket to account for apparent case-mix increase.
While we proposed to revise the cost-to-charge ratio and
reconciliation provisions as they apply to LTCH outlier payment
policies, we are not making these changes in this final rule; rather,
in response to comments, we are again proposing these policies in the
FY 2007 IPPS proposed rule, and we are including additional data
requested by commenters.

B. Policy Changes

In section V.D.6. of this preamble, we are postponing the deadline
for making the one-time prospective adjustment for the Federal rate at
Sec. 412.523(d)(3).
In section VI.A. of this preamble, we are revising the existing
payment adjustment for SSO cases. Also in section VI.A. of this
preamble, we are sunsetting the surgical DRG exception to the payment
policy established under the 3-day or less interruption of stay
regulations at Sec. 412.531(a)(1).
In section VI.B. of this preamble, for LTCH hospitals within
hospitals (HwHs) and LTCH satellites, we are clarifying at Sec.
412.534(c) the policy for adjusting the LTCH PPS payment based on the
amount that would be determined under the IPPS methodology. We state
the methodology used for calculating the LTCH PPS payment amount that
is equivalent to what would otherwise be paid under the IPPS. We are
also codifying in regulations the general formula we currently use to
give affect to the regulations as they pertain to calculating an amount
under subpart O that is equivalent to an amount that would be
determined under Sec. 412.1(a).

C. MedPAC Recommendations

In section XII.A. of this preamble, we discuss the recommendation
made in

[[Page 27803]]

the March 2006 Report to Congress: Medicare Payment Policy to eliminate
an update to payment rates for long-term care services for RY 2007.
In section XII.B. of this preamble, we discuss Research Triangle
Institute, International's (RTI) evaluation of the feasibility of
adopting recommendations made in the June 2004 MedPAC report.
In Appendix A of this final rule, we present a description of a
preliminary model of an update framework under the LTCH PPS that we may
propose to use in the future for purposes of the annual updating of the
LTCH PPS Federal rate in future years.

D. Impact

In section XV. of this preamble, we analyze the impact of the
changes presented in this final rule on Medicare expenditures,
Medicare-participating LTCHs, and Medicare beneficiaries.

IV. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications
and Relative Weights

A. Background

Section 123 of the BBRA specifically requires that the Secretary
implement a PPS for LTCHs (that is, a per discharge system with a DRG-
based patient classification system reflecting the differences in
patient resources and costs in LTCHs while maintaining budget
neutrality). Section 307(b)(1) of the BIPA modified the requirements of
section 123 of the BBRA by specifically requiring that the Secretary
examine ``the feasibility and the impact of basing payment under such a
system [the LTCH PPS] on the use of existing (or refined) hospital DRGs
that have been modified to account for different resource use of LTCH
patients as well as the use of the most recently available hospital
discharge data.''
In accordance with section 123 of the BBRA as amended by section
307(b)(1) of the BIPA and Sec. 412.515, we use information derived
from LTCH PPS patient records to classify these cases into distinct
LTC-DRGs based on clinical characteristics and estimated resource
needs. The LTC-DRGs used as the patient classification component of the
LTCH PPS correspond to the hospital inpatient DRGs in the IPPS. We
assign an appropriate weight to the LTC-DRGs to account for the
difference in resource use by patients exhibiting the case complexity
and multiple medical problems characteristic of LTCHs.
In a departure from the IPPS, we use low volume LTC-DRGs (less than
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not
typically treat the full range of diagnoses as do acute care hospitals.
In order to manage the large number of low volume DRGs (all DRGs with
fewer than 25 cases), we group low volume DRGs into 5 quintiles based
on average charge per discharge. (A listing of the current composition
of low volume quintiles used in determining the FY 2006 LTC-DRG
relative weights appears in the FY 2006 IPPS final rule (70 FR 47329
through 47332). A listing of the composition of proposed low volume
quintiles used in determining the proposed FY 2007 LTC-DRG relative
weights appears in the FY 2007 IPPS proposed rule (71 FR 24054 through
24058). We also account for adjustments to payments for cases in which
the stay at the LTCH is less than or equal to five-sixths of the
geometric ALOS and classify these cases as SSO cases. (A detailed
discussion of the application of the Lewin Group model that was used to
develop the LTC-DRGs appears in the August 30, 2002 LTCH PPS final rule
(67 FR 55978).)

B. Patient Classifications into DRGs

Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge; that payment varies by
the LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into LTC-DRGs for payment based on the following six data
elements:
(1) Principal diagnosis.
(2) Up to eight additional diagnoses.
(3) Up to six procedures performed.
(4) Age.
(5) Sex.
(6) Discharge status of the patient.
As indicated in the August 30, 2002 LTCH PPS final rule, upon the
discharge of the patient from an LTCH, the LTCH must assign appropriate
diagnosis and procedure codes from the most current version of the ICD-
9-CM. HIPAA transactions and code sets standards regulations (45 CFR
parts 160 and 162) require that no later than October 16, 2003, all
covered entities must comply with the applicable requirements of
subparts A and I through R of part 162. Among other requirements, those
provisions direct covered entities to use the ASC X12N 837 Health Care
Claim: Institutional, Volumes 1 and 2, version 4010, and the applicable
standard medical data code sets for the institutional health care claim
or equivalent encounter information transaction. (See 45 CFR 162.1002
and 45 CFR 162.1102).
Medicare FIs enter the clinical and demographic information into
their claims processing systems and subject this information to a
series of automated screening processes called the Medicare Code Editor
(MCE). These screens are designed to identify cases that require
further review before assignment into a DRG can be made. During this
process, the following types of cases are selected for further
development:
Cases that are improperly coded. (For example, diagnoses
are shown that are inappropriate, given the sex of the patient. Code
68.6, Radical abdominal hysterectomy, would be an inappropriate code
for a male.)
Cases including surgical procedures not covered under
Medicare. (For example, organ transplant in a non-approved transplant
center.)
Cases requiring more information. (For example, ICD-9-CM
codes are required to be entered at their highest level of specificity.
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262,
Other severe protein-calorie malnutrition, contains all appropriate
digits, but if it is reported with either fewer or more than 3 digits,
the claim will be rejected by the MCE as invalid.)
Cases with principal diagnoses that do not usually justify
admission to the hospital. (For example, code 437.9, unspecified
cerebrovascular disease. While this code is valid according to the ICD-
9-CM coding scheme, a more precise code should be used for the
principal diagnosis.)
After screening through the MCE, each claim will be classified into
the appropriate LTC-DRG by the Medicare LTCH GROUPER software. As
indicated in the August 30, 2002 LTCH PPS final rule, the Medicare
GROUPER software, which is used under the LTCH PPS, is specialized
computer software, and is the same GROUPER software program used under
the IPPS. The GROUPER software was developed as a means of classifying
each case into a DRG on the basis of diagnosis and procedure codes and
other demographic information (age, sex, and discharge status).
Following the LTC-DRG assignment, the Medicare FI determines the
prospective payment by using the Medicare PRICER program, which
accounts for hospital-specific adjustments. Under the LTCH PPS, we
provide an opportunity for the LTCH to review the LTC-DRG assignments
made by the FI and to submit additional information within a specified
timeframe as specified in Sec. 412.513(c).
The GROUPER software is used both to classify past cases in order
to measure relative hospital resource consumption to establish the DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the

[[Page 27804]]

MedPAR file. The data in this file are used to evaluate possible DRG
classification changes and to recalibrate the DRG weights during our
annual update under both the IPPS (Sec. 412.60(e)) and the LTCH PPS
(Sec. 412.517). As discussed in greater detail in sections IV.D. and
E. of this preamble, with the implementation of section 503(a) of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) (Pub. L. 108-173), there is the possibility that one feature of
the GROUPER software program may be updated twice during a Federal
fiscal year (FY) (October 1 and April 1) as required by the statute for
the IPPS (69 FR 48954 through 48957). Specifically, as we discussed in
the FY 2006 IPPS final rule, ICD-9-CM diagnosis and procedure codes for
new medical technology may be created and added to existing DRGs in the
middle of the Federal FY on April 1 (70 FR 47323). However, this policy
change will have no effect on the LTC-DRG relative weights, which will
continue to be updated only once a year (October 1), nor will there be
any impact on Medicare payments under the LTCH PPS. The use of the ICD-
9-CM code set is also compliant with the current requirements of the
Transactions and Code Sets Standards regulations at 45 CFR parts 160
and 162, published in accordance with HIPAA.

C. Organization of DRGs

The DRGs are organized into 25 major diagnostic categories (MDCs),
most of which are based on a particular organ system of the body; the
remainder involve multiple organ systems (such as MDC 22, Burns).
Accordingly, the principal diagnosis determines MDC assignment. Within
most MDCs, cases are then divided into surgical DRGs and medical DRGs.
Surgical DRGs are assigned based on a surgical hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. The GROUPER software program does not recognize all
ICD-9-CM procedure codes as procedures that affect DRG assignment, that
is, procedures which are not surgical (for example, EKG), or minor
surgical procedures (for example, 86.11, Biopsy of skin and
subcutaneous tissue).
The medical DRGs are generally differentiated on the basis of
diagnosis. Both medical and surgical DRGs may be further differentiated
based on age, sex, discharge status, and presence or absence of
complications or comorbidities (CC). We note that CCs are defined by
certain secondary diagnoses not related to, or not inherently a part
of, the disease process identified by the principal diagnosis. (For
example, the GROUPER software would not recognize a code from the
800.0x series, Skull fracture, as a CC when combined with principal
diagnosis 850.4, Concussion with prolonged loss of consciousness,
without return to preexisting conscious level.) In addition, we note
that the presence of additional diagnoses does not automatically
generate a CC, as not all DRGs recognize a comorbid or complicating
condition in their definition. (For example, DRG 466, Aftercare without
History of Malignancy as Secondary Diagnosis, is based solely on the
principal diagnosis, without consideration of additional diagnoses for
DRG determination.)
In its June 2000, Report to Congress, MedPAC recommended that the
Secretary ``* * * improve the hospital inpatient prospective payment
system by adopting, as soon as practicable, diagnosis-related group
refinements that more fully capture differences in severity of illness
among patients'' (Recommendation 3A, p. 63). In response to that
recommendation, we determined at that time that it was not practical to
develop a refinement to inpatient hospital DRGs based on severity due
to time and resource requirements. However, this does not preclude us
from development of a severity-adjusted DRG refinement in the future.
That is, a refinement to the list of CCs could be incorporated into the
existing DRG structure. It is also possible that a more comprehensive
severity adjusted structure may be created if a new code set is
adopted. That is, if ICD-9-CM is replaced by ICD-10-CM (for diagnostic
coding) and ICD-10-PCS (for procedure coding) or by other code sets, a
severity concept may be built into the resulting DRG assignments. Of
course, any change to the code set would be adopted through the process
established in the HIPAA Administrative Simplification Standards
provisions.
In its March 2005 Report to Congress, ``Physician-Owned Specialty
Hospitals,'' MedPAC recommended that the Secretary improve payment
accuracy in the hospital IPPS by, among other things, ``refining the
current DRGs to more fully capture differences in severity of illness
among patients'' (Recommendation 1, p. 93). In the FY 2006 IPPS final
rule (70 FR 47474 through 47479), we stated that we expected to make
changes to the DRGs to better reflect severity of illness and we
indicated that we plan to conduct a comprehensive review of the CCs
list for FY 2007. We also indicated that we are considering the
possibility of proposing to use the All Patient Refined (APR) DRGs
under the IPPS for FY 2007. We explained that we did not propose to
adopt the APR-DRGS under the IPPS for FY 2006 because it would
represent a significant undertaking that could have a substantial
effect on all hospitals and there was insufficient time to fully
analyze a change of that magnitude. However, as an interim step to
better recognize severity in the DRG system for FY 2006, until we could
complete a more comprehensive analysis of the APR-DRG system and CC
list as part of a complete analysis of the MedPAC recommendations that
we planned to perform over the next year, we established cardiovascular
DRGs 547 through 558 as described in the FY 2006 IPPS final rule (70 FR
47474 through 47478).
In the FY 2007 IPPS proposed rule, we present the proposed changes
to the DRG system for FY 2007 (71 FR 24049). In that rule, we proposed
to use the IPPS GROUPER Version 24.0 for FY 2007 to process LTCH PPS
claims for LTCH discharges occurring from October 1, 2006 through
September 30, 2007 (71 FR 24049). As we also noted in that proposed
rule, in its March 1, 2005 Report to Congress on Medicare Payment
Policy (page 64) and Recommendation 1 in the 2005 Report to Congress on
Physician-Owned Specialty Hospitals, MedPAC recommended that CMS, among
other things, refine the current DRGs under the IPPS to more fully
capture differences in severity of illness among patients. In
evaluating this MedPAC recommendation for the IPPS, we are evaluating
the APR-DRG Grouper used by MedPAC in its analysis. Based on this
analysis, we developed a consolidated severity adjusted DRG system that
we believe could be a better alternative for recognizing severity of
illness among the Medicare population that we are considering to
propose for future use under the IPPS. As discussed above in this
section, the LTCH PPS uses the same patient classification system (that
is, DRGs). In response to MedPAC recommendations that severity adjusted
DRGs be adopted under the IPPS, we are examining the possibility of
adopting a consolidated version of the APR-DRGs. In the event that
severity adjusted DRGs, such as the consolidated severity adjusted
DRGs, are adopted under the IPPS, we would need to consider whether to
revise the patient classification system under the LTCH PPS. Any
proposed changes to the patient classification system would be done
through notice and comment rulemaking.

[[Page 27805]]

D. Update of LTC-DRGs

For FY 2006, the LTC-DRG patient classification system was based on
LTCH data from the FY 2004 MedPAR file, which contained hospital bills
data from the March 2005 update. The patient classification system
consists of 526 DRGs that formed the basis of the FY 2006 LTCH PPS
GROUPER program. The 526 LTC-DRGs included two ``error DRGs.'' As in
the IPPS, we included two error DRGs in which cases that cannot be
assigned to valid DRGs will be grouped. These two error DRGs are DRG
469 (Principal Diagnosis Invalid as a Discharge Diagnosis) and DRG 470
(Ungroupable). (See the FY 2006 IPPS final rule (70 FR 47323 through
47341)). The other 524 LTC-DRGs are the same DRGs used in the IPPS
GROUPER program for FY 2006 (Version 23.0).
In the past, the annual update to the CMS DRGs was based on the
annual revisions to the ICD-9-CM codes and was effective each October
1. The ICD-9-CM coding update process was revised as discussed in
greater detail in the FY 2005 IPPS final rule (69 FR 48954 through
48957). Specifically, section 503(a) of the MMA includes a requirement
for updating ICD-9-CM codes twice a year instead of the current process
of annual updates on October 1 of each year. This requirement is
included as part of the amendments to the Act relating to recognition
of new medical technology under the IPPS. (For additional information
on this provision, including its implementation and its impact on the
LTCH PPS, refer to the FY 2005 IPPS final rule (69 FR 48952 through
48957) and the RY 2006 LTCH PPS final rule (70 FR 24172 through
24177).)
As discussed in the RY 2006 LTCH PPS final rule, with the
implementation of section 503(a) of the MMA, there is the possibility
that one feature of the GROUPER software program may be updated twice
during a Federal FY (October 1 and April 1) as required by the statute
for the IPPS (70 FR 24173 through 24175). Specifically, ICD-9-CM
diagnosis and procedure codes for new medical technology may be created
and added to existing DRGs in the middle of the Federal FY on April 1.
No new LTC-DRGs will be created or deleted. Consistent with our current
practice, any changes to the DRGs or relative weights will be made at
the beginning of the next Federal FY (October 1). Therefore, there will
not be any impact on Medicare payments under the LTCH PPS. The use of
the ICD-9-CM code set is also compliant with the current requirements
of the Transactions and Code Sets Standards regulations at 45 CFR parts
160 and 162, issued under HIPAA.
As we explained in the FY 2006 IPPS final rule, historically in the
health care industry annual changes to the ICD-9-CM codes were
effective for discharges occurring on or after October 1 each year (70
FR 47323). Thus, the manual and electronic versions of the GROUPER
software, which are based on the ICD-9-CM codes, were also revised
annually and effective for discharges occurring on or after October 1
each year. The patient classification system used under the LTCH PPS
(LTC-DRGs) is based on the DRG patient classification system used under
the IPPS, which historically had been updated annually and effective
for discharges occurring on or after October 1 through September 30
each year. As we also mentioned, the ICD-9-CM coding update process was
revised as a result of the implementation of section 503(a) of the MMA,
which includes a requirement for updating ICD-9-CM codes as often as
twice a year instead of the current process of annual updates on
October 1 of each year. As discussed in the FY 2005 IPPS final rule,
this requirement is included as part of the amendments to the Act
relating to recognition of new medical technology under the IPPS (69 FR
48954 through 48957). Section 503(a) of the MMA amended section
1886(d)(5)(K) of the Act by adding a new paragraph (vii) which states
that ``the Secretary shall provide for the addition of new diagnosis
and procedure codes on April 1 [sic] of each year, but the addition of
such codes shall not require the Secretary to adjust the payment (or
diagnosis-related group classification) * * * until the fiscal year
that begins after such date.'' This requirement will improve the
recognition of new technologies under the IPPS by accounting for those
ICD-9-CM codes in the MedPAR claims data at an earlier date.
Despite the fact that aspects of the GROUPER software may be
updated to recognize any new technology ICD-9-CM codes, there will be
no impact on either LTC-DRG assignments or payments under the LTCH PPS
at that time. That is, changes to the LTC-DRGs (such as the creation or
deletion of LTC-DRGs) and the relative weights will continue to be
updated in the manner and timing (October 1) as they are now.
Updates to the GROUPER software for both the IPPS and the LTCH PPS
(for relative weights and the creation or deletion of DRGs) are made in
the annual IPPS proposed and final rules and are effective each October
1. We also explained that since we do not publish a midyear IPPS rule,
April 1 code updates will not be published in a midyear IPPS rule.
Rather, we will assign any new diagnosis or procedure codes to the same
DRG in which its predecessor code was assigned, so that there will be
no impact on the DRG assignments until the following October 1. Any
coding updates will be available through the websites provided in
section IV.E. of this preamble and through the Coding Clinic for ICD-9-
CM. Publishers and software vendors currently obtain code changes
through these sources in order to update their code books and software
system. If new codes are implemented on April 1, revised code books and
software systems, including the GROUPER software program, will be
necessary because we must use current ICD-9-CM codes. Therefore, for
purposes of the LTCH PPS, because each ICD-9-CM code must be included
in the GROUPER algorithm to classify each case into an LTC-DRG, the
GROUPER software program used under the LTCH PPS would need to be
revised to accommodate any new codes.
In implementing section 503(a) of the MMA, there will only be an
April 1 update if new technology codes are requested and approved. We
note that any new codes created for April 1 implementation will be
limited to those diagnosis and procedure code revisions primarily
needed to describe new technologies and medical services. However, we
reiterate that the process of discussing updates to the ICD-9-CM has
been an open process through the ICD-9-CM Coordination and Maintenance
Committee since 1995. Requestors will be given the opportunity to
present the merits for a new code and make a clear and convincing case
for the need to update ICD-9-CM codes through an April 1 update.
Discharges between October 1, 2005, and September 30, 2006,
(Federal FY 2006) are using Version 23.0 of the GROUPER software for
both the IPPS and the LTCH PPS. Consistent with our current practice,
any changes to the DRGs or relative weights will be made at the
beginning of the Federal FY (October 1). We will notify LTCHs of any
revised LTC-DRG relative weights based on the final DRGs and the
applicable version of the GROUPER software program that will be
effective October 1, 2006, in the annual IPPS proposed and final rules.
At the September 2005 ICD-9-CM Coordination and Maintenance Committee
meeting, there were no requests for an April 1, 2006 implementation of
ICD-9-CM codes, and therefore, the next update to the

[[Page 27806]]

ICD-9-CM coding system will not occur until October 1, 2006 (FY 2007).
Presently, as there were no coding changes suggested for an April 1,
2006 update, the ICD-9-CM coding set implemented on October 1, 2005,
will continue through September 30, 2006 (FY 2006). The next update to
the LTC-DRGs and relative weights for FY 2007 will be presented in the
FY 2007 IPPS proposed and final rules. Furthermore, we would notify
LTCHs of any revisions to the GROUPER software used under the IPPS and
LTCH PPS that would be implemented April 1, 2007. As noted previously
in this section, in the FY 2007 IPPS proposed rule (71 FR 24050), we
proposed to use Version 24.0 of the CMS GROUPER, which would be used
under the IPPS for FY 2007, to classify cases for LTCH PPS discharges
that would occur on or after October 1, 2006 and on or before September
30, 2007.

E. ICD-9-CM Coding System

1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
Because the assignment of a case to a particular LTC-DRG will help
determine the amount that will be paid for the case, it is important
that the coding is accurate. Classifications and terminology used in
the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as
recommended to the Secretary by the National Committee on Vital and
Health Statistics (``Uniform Hospital Discharge Data: Minimum Data Set,
National Center for Health Statistics, April 1980'') and as revised in
1984 by the Health Information Policy Council (HIPC) of the Department
of Health and Human Services (HHS).
We note that the ICD-9-CM coding terminology and the definitions of
principal and other diagnoses of the UHDDS are consistent with the
requirements of the HIPAA Administrative Simplification Act of 1996 (45
CFR part 162). Furthermore, the UHDDS was used as a standard for the
development of policies and programs related to hospital discharge
statistics by both governmental and nongovernmental sectors for over 30
years. In addition, the following definitions (as described in the 1984
Revision of the UHDDS, approved by the Secretary for use starting
January 1986) are requirements of the ICD-9-CM coding system, and have
been used as a standard for the development of the CMS DRGs:
Diagnoses are defined to include all diagnoses that affect
the current hospital stay.
Principal diagnosis is defined as the condition
established after study to be chiefly responsible for occasioning the
admission of the patient to the hospital for care.
Other diagnoses (also called secondary diagnoses or
additional diagnoses) are defined as all conditions that coexist at the
time of admission, that develop subsequently, or that affect the
treatment received or the LOS or both. Diagnoses that relate to an
earlier episode of care that have no bearing on the current hospital
stay are excluded.
All procedures performed will be reported. This includes
those that are surgical in nature, carry a procedural risk, carry an
anesthetic risk, or require specialized training.
We provide LTCHs with a 60-day window after the date of the notice
of the initial LTC-DRG assignment to request review of that assignment.
Additional information may be provided by the LTCH to the FI as part of
that review.
2. Maintenance of the ICD-9-CM Coding System
The ICD-9-CM Coordination and Maintenance (C&M) Committee is a
Federal interdepartmental committee, co-chaired by the National Center
for Health Statistics (NCHS) and CMS, that is charged with maintaining
and updating the ICD-9-CM system. The C&M Committee is jointly
responsible for approving coding changes, and developing errata,
addenda, and other modifications to the ICD-9-CM to reflect newly
developed procedures and technologies and newly identified diseases.
The C&M Committee is also responsible for promoting the use of Federal
and non-Federal educational programs and other communication techniques
with a view toward standardizing coding applications and upgrading the
quality of the classification system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
we have the lead responsibility for the ICD-9-CM procedure codes
included in the Tabular List and Alphabetic Index for Procedures. The
C&M Committee encourages participation by health-related organizations
in this process and holds public meetings for discussion of educational
issues and proposed coding changes twice a year at the CMS Central
Office located in Baltimore, Maryland. The agenda and dates of the
meetings can be accessed on our Web site at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes.
As discussed previously in this section of the preamble, section
503(a) of the MMA includes a requirement for updating ICD-9-CM codes
twice a year instead of the current process of annual updates on
October 1 of each year. This requirement will improve the recognition
of new technologies under the IPPS by accounting for them in the
GROUPER software at an earlier date. Because this new statutory
requirement could have a significant impact on health care providers,
coding staff, publishers, system maintainers, and software systems,
among others, we solicited comments on our proposed provisions to
implement this requirement as part of the FY 2005 IPPS proposed rule
(69 FR 28220 through 28221). We responded to comments and published our
new policy regarding the updating of ICD-9-CM codes in the FY 2005 IPPS
final rule (69 FR 48954 through 48957).
While this new requirement states that the Secretary shall not
adjust the payment of the DRG classification for any codes created for
use on April 1, DRG software and other systems will have to be updated
in order to recognize and accept the new codes. If any coding changes
were implemented on April 1, the Medicare GROUPER software program used
under both the IPPS and the LTCH PPS would need to be revised to
reflect the new ICD-9-CM codes because the LTC-DRGs are the same DRGs
used under the IPPS. Furthermore, although the GROUPER software used
under both the IPPS and the LTCH PPS would need to be revised to
accommodate the new codes effective April 1, there would be no
additions or deletions of DRGs nor would the relative weights used
under the IPPS and the LTCH PPS, respectively, be changed until the
annual update on October 1 (to the extent that those changes are
warranted), just as they are historically updated. As the LTCH PPS is
based on the IPPS, we adopted the same approach used under the IPPS for
potential April 1 ICD-9-CM coding changes. That is, we will assign any
new diagnosis codes or procedure codes to the same DRG in which its
predecessor code was assigned, so there will be no DRG impact in terms
of potential DRG assignment until the following October 1. We will
maintain the current method of publicizing any new code changes, as
noted below. Current addendum and code title information is published
on the CMS web page at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp. Summary tables showing
new, revised, and deleted code titles are also posted on the following
CMS web page: http://www.cms.hhs.gov/

[[Page 27807]]

ICD9ProviderDiagnosticCodes/07--summarytables.asp. Information on ICD-
9-CM diagnosis codes can be found at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/. Information on new, revised, and deleted
ICD-9-CM codes is also available in the American Hospital Association
(AHA) publication, the Coding Clinic for ICD-9-CM. AHA also distributes
information to publishers and software vendors. We also send copies of
all ICD-9-CM coding changes to our contractors for use in updating
their systems and providing education to providers.
If the April 1 changes are made to ICD-9-CM diagnosis or procedure
codes, LTCHs will be required to obtain the new codes, coding books, or
encoder updates, and make other system changes in order to capture and
report the new codes. When we implemented section 503(a) of the MMA in
the FY 2005 IPPS final rule, we indicated that we were aware of the
additional burden this will have on health care providers.
It should be noted that any new codes created for April 1
implementation will be limited to those diagnosis and procedure code
revisions primarily needed to describe new technologies and medical
services. However, we reiterate that the process for discussing updates
to the ICD-9-CM has been an open process through the ICD-9-CM C&M
Committee since 1995. Any requestor who makes a clear and convincing
case for the need to update ICD-9-CM codes for purposes of the IPPS new
technology add-on payment process through an April 1 update will be
given the opportunity to present the merits of their proposed new code.
At the September 2005 C&M Committee meeting, no new codes were
proposed for update on April 1, 2006. While no DRG additions or
deletions or changes to relative weights will occur prior to the usual
October 1 update, in the event any new codes were created to describe
new technologies and medical services through an April 1, 2006 update,
under our policy established in the RY 2006 final rule (70 FR 24176),
LTCH systems would have been expected to recognize and report those new
codes through the channels as described in this section.
The ICD-9-CM coding changes that have been adopted by the C&M
Committee would become effective either at the beginning of each
Federal FY (October 1) or, in the case of codes created to capture new
technology, April 1 of each year. Coders will be expected to use the
most current ICD-9-CM codes, as updated. Because we do not publish a
mid-year IPPS rule, the currently accepted avenues of information
dissemination will be used to inform all ICD-9-CM code users of any
changes to the coding system. These avenues were described in section
IV.D. of this preamble and were discussed at length in the FY 2005 IPPS
final rule (69 FR 48956). Coders in LTCHs using the updated ICD-9-CM
coding system will be on the same schedule as the rest of the health
care industry. In the past, the updated ICD-9-CM was not available for
use until October 1 of each year.
Therefore, because the LTCH PPS and the IPPS use the same GROUPER
software, the LTCH PPS will be directly affected by the statutory
mandates directed at the IPPS as amended by section 503(a) of the MMA.
(We note that there is no statutory requirement in the LTCH PPS to make
additional payments for new technology.) The practical effect of this
provision is that the GROUPER software must accept new ICD-9-CM codes
reflecting the incorporation of new technologies into inpatient
treatment at an acute care hospital prior to the scheduled annual
update of the GROUPER software. Despite the fact that there are no
provisions for additional payments for new technology under the LTCH
PPS as there are under the IPPS, statutory compliance requires an
alteration of the GROUPER software used under the IPPS, and since the
LTCH PPS uses the same GROUPER software that is used under the IPPS,
this consequently means that the GROUPER software used under the LTCH
PPS would change. While DRG assignments would not change from October 1
through September 30, it is possible that there could be additional new
ICD-9-CM diagnosis and procedure codes during that time, which would be
assigned to predecessor DRGs. For both the IPPS and LTCH coders, it is
possible that there will be ICD-9-CM codes in effect from October 1
through March 31, with additional ICD-9-CM codes in effect from April 1
through September 30. Presently, as there were no coding changes
suggested for an April 1, 2006 update, the ICD-9-CM coding set
implemented on October 1, 2005 will continue through September 30, 2006
(FY 2006).
Of particular note to LTCHs are the invalid diagnosis codes (Table
6C) and the invalid procedure codes (Table 6D) located in the annual
proposed and final rules for the IPPS. Claims with invalid codes are
not processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
We emphasize the need for proper coding by LTCHs. Inappropriate
coding of cases can adversely affect the uniformity of cases in each
LTC-DRG and produce inappropriate weighting factors at recalibration.
We continue to urge LTCHs to focus on improved coding practices.
Because of concerns raised by LTCHs concerning correct coding, we have
asked the AHA to provide additional clarification or instruction on
proper coding in the LTCH setting. The AHA will provide this
instruction via their established process of addressing questions
through their publication, the Coding Clinic for ICD-9-CM. Written
questions or requests for clarification may be addressed to the Central
Office on ICD-9-CM, American Hospital Association, One North Franklin,
Chicago, IL 60606. A form for question(s) is available for download and
can be mailed on AHA's Web site at: http://www.ahacentraloffice.org. In
addition, current coding guidelines are available at the NCHS Web site:
http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm#conv.
In conjunction with the cooperating parties (AHA, the American
Health Information Management Association (AHIMA), and NCHS), we
reviewed actual medical records and are concerned about the quality of
the documentation under the LTCH PPS, as was the case at the beginning
of the IPPS. We fully believe that, with experience, the quality of the
documentation and coding will improve, as it did for the IPPS. The
cooperating parties have plans to assist their members with improvement
in documentation and coding issues for the LTCHs through specific
questions and coding guidelines. The importance of good documentation
is emphasized in the revised ICD-9-CM Official Guidelines for Coding
and Reporting: ``A joint effort between the attending physician and
coder is essential to achieve complete and accurate documentation, code
assignment, and reporting of diagnoses and procedures. The importance
of consistent, complete documentation in the medical record cannot be
overemphasized. Without this documentation, the application of all
coding guidelines is a difficult, if not impossible, task'' (Coding
Clinic for ICD-9-CM, Fourth Quarter 2002, page 115).
To improve medical record documentation, LTCHs should be aware that
if the patient is being admitted for continuation of treatment of an
acute or

[[Page 27808]]

chronic condition, guidelines at Section I.B.10 of the Coding Clinic
for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable for the
selection of principal diagnosis. To clarify coding advice issued in
the August 30, 2002 final rule (67 FR 55979), at Guideline I.B.12, Late
Effects, we state that a late effect is considered to be the residual
effect (condition produced) after the acute phase of an illness or
injury has terminated (Coding Clinic for ICD-9-CM, Fourth Quarter 2002,
page 129). Regarding whether a LTCH should report the ICD-9-CM code(s)
for an unresolved acute condition instead of the code(s) for late
effects of rehabilitation, we emphasize that each case must be
evaluated on its unique circumstances and coded appropriately.
Depending on the documentation in the medical record, either a code
reflecting the acute condition or rehabilitation could be appropriate
in a LTCH.
Since implementation of the LTCH PPS, our Medicare FIs have
conducted training and provided assistance to LTCHs in correct coding.
We have also issued manuals containing procedures as well as coding
instructions to LTCHs and FIs. We will continue to conduct training and
provide guidance on an as-needed basis. We also refer readers to the
detailed discussion on correct coding practices in the August 30, 2002
LTCH PPS final rule (67 FR 55981 through 55983). Additional coding
instructions and examples will be published in the Coding Clinic for
ICD-9-CM.

F. Method for Updating the LTC-DRG Relative Weights

As discussed in the August 30, 2002 LTCH PPS final rule that
implemented the LTCH PPS, under the LTCH PPS, each LTCH will receive a
payment that represents an appropriate amount for the efficient
delivery of care to Medicare patients (67 FR 55984). The system must be
able to account adequately for each LTCH's case-mix in order to ensure
both a fair distribution of Medicare payments and access to adequate
care for those Medicare patients whose care is more costly. Therefore,
in Sec. 412.523(c), we adjust the standard Federal PPS rate by the
LTC-DRG relative weights in determining payment to LTCHs for each case.
Under this payment system, relative weights for each LTC-DRG are a
primary element used to account for the variations in cost per
discharge and resource utilization among the payment groups as
described in Sec. 412.515. To ensure that Medicare patients who are
classified to each LTC-DRG have access to an appropriate level of
services and to encourage efficiency, we calculate a relative weight
for each LTC-DRG that represents the resources needed by an average
inpatient LTCH case in that LTC-DRG. For example, cases in a LTC-DRG
with a relative weight of 2 will, on average, cost twice as much as
cases in a LTC-DRG with a weight of 1.
As we discussed in the FY 2006 IPPS final rule, the LTC-DRG
relative weights effective under the LTCH PPS for Federal FY 2006 were
calculated using the March 2005 update of FY 2004 MedPAR data and
Version 23.0 of the GROUPER software (70 FR 47325). We use total days
and total charges in the calculation of the LTC-DRG relative weights.
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
Distribution of cases with relatively high (or low) charges in specific
LTC-DRGs has the potential to inappropriately distort the measure of
average charges. To account for the fact that cases may not be randomly
distributed across LTCHs, we use a hospital-specific relative value
method to calculate relative weights. We believe this method removes
this hospital-specific source of bias in measuring average charges.
Specifically, we reduce the impact of the variation in charges across
providers on any particular LTC-DRG relative weight by converting each
LTCH's charge for a case to a relative value based on that LTCH's
average charge. (See the FY 2006 IPPS final rule for further
information on the hospital-specific relative value methodology (70 FR
47328 through 47329).)
To account for LTC-DRGs with low volume (that is, with fewer than
25 LTCH cases), we grouped those low volume LTC-DRGs into 1 of 5
categories (quintiles) based on average charges, for the purposes of
determining relative weights. For FY 2006, based on the FY 2004 MedPAR
data, we identified 171 LTC-DRGs that contained between 1 and 24 cases.
This list of low volume LTC-DRGs was then divided into 1 of the 5 low
volume quintiles, each containing a minimum of 34 LTC-DRGs (171/5 = 34
with 1 LTC-DRG as a remainder). Each of the low volume LTC-DRGs grouped
to a specific quintile received the same relative weight and ALOS using
the formula applied to the regular LTC-DRGs (25 or more cases). (See
the FY 2006 IPPS final rule for further explanation of the development
and composition of each of the 5 low volume quintiles for FY 2006 (70
FR 47329 through 47332).)
After grouping the cases in the appropriate LTC-DRG, we calculated
the relative weights by first removing statistical outliers and cases
with a LOS of 7 days or less. Next, we adjusted the number of cases
remaining in each LTC-DRG for the effect of short-stay outlier cases
under Sec. 412.529. The short-stay adjusted discharges and
corresponding charges were used to calculate ``relative adjusted
weights'' in each LTC-DRG using the hospital-specific relative value
method. We also adjusted the LTC-DRG relative weights to account for
nonmonotonically increasing relative weights. That is, we made an
adjustment if cases classified to the LTC-DRG ``with complications or
comorbidities (CCs)'' of a ``with CC''/''without CC'' pair had a lower
average charge than the corresponding LTC-DRG ``without CCs'' by
assigning the same weight to both LTC-DRGs in the ``with CC''/''without
CC'' pair. (See the FY 2006 IPPS final rule for further details on the
steps for calculating the LTC-DRG relative weights (70 FR 47336 through
47341).)
In addition, of the 526 LTC-DRGs in the LTCH PPS for FY 2006, based
on LTCH cases in the FY 2004 MedPAR files, we identified 196 LTC-DRGs
for which there were no LTCH cases in the database. That is, no
patients who would have been classified to those DRGs were treated in
LTCHs during FY 2004 and, therefore, no charge data were reported for
those DRGs. Thus, in the process of determining the relative weights of
LTC-DRGs, we were unable to determine weights for these 196 LTC-DRGs
using the method described in this section of the preamble. However,
since patients with a number of the diagnoses under these LTC-DRGs may
be treated at LTCHs beginning in FY 2006, we assigned relative weights
to each of the 196 ``no volume'' LTC-DRGs based on clinical similarity
and relative costliness to one of the remaining 330 (526-196 = 330)
LTC-DRGs for which we were able to determine relative weights, based on
the FY 2004 claims data. (A list of the current no-volume LTC-DRGs and
further explanation of their FY 2006 relative weight assignment can be
found in the FY 2006 IPPS final rule (70 FR 47337 through 47341).)
Furthermore, for FY 2006, we established LTC-DRG relative weights
of 0.0000 for heart, kidney, liver, lung, and simultaneous pancreas/
kidney transplants (LTC-DRGs 103, 302, 480, 495, 512 and 513,
respectively) because Medicare will only cover these procedures if they
are performed at a

[[Page 27809]]

hospital that has been certified for the specific procedures by
Medicare and presently no LTCH has been so certified. If in the future,
however, a LTCH applies for certification as a Medicare-approved
transplant center, we believe that the application and approval
procedure would allow sufficient time for us to propose appropriate
weights for the LTC-DRGs affected. At the present time, we included
these 6 transplant LTC-DRGs in the GROUPER software program for
administrative purposes. As the LTCH PPS uses the same GROUPER software
program for LTCHs as is used under the IPPS, removing these DRGs would
be administratively burdensome.
As we noted previously, there were no new ICD-9-CM code requests
for an April 1, 2006 update. Therefore, Version 23.0 of the DRG GROUPER
software established in the FY 2006 IPPS final rule (70 FR 47284
through 47322) will continue to be effective until October 1, 2006.
Moreover, the LTC-DRGs and relative weights for FY 2006 established in
that same IPPS final rule (70 FR 47681 through 47689) will continue to
be effective until October 1, 2006, (just as they would have been even
if there had been any new ICD-9-CM code requests for an April 1, 2006
update). Accordingly, Table 3 in the Addendum to this final rule lists
the LTC-DRGs and their respective relative weights, geometric ALOS, and
five-sixths of the geometric ALOS that we will continue to use for the
period of July 1, 2006 through September 30, 2006. (This table is the
same as table 11 of the Addendum to the FY 2006 IPPS final rule (70 FR
47681 through 47689). The next update to the ICD-9-CM coding system was
presented in the FY 2007 IPPS proposed rule (since there will be no
April 1, 2006 updates to the ICD-9-CM coding system). In addition, the
proposed DRGs and GROUPER for FY 2007 that would be used for the IPPS
and the LTCH PPS, effective October 1, 2006, were presented in the IPPS
FY 2007 proposed rule in the Federal Register (71 FR 24049 through
24068). As discussed in that proposed rule, we proposed to calculate
the proposed LTC-DRG relative weights for FY 2007 using total Medicare
allowable charges from FY 2005 Medicare LTCH bill data from the
December 2005 update of the MedPAR file, which were the best available
data at that time, and we used the proposed Version 24.0 of the CMS
GROUPER, which would be the same GROUPER that we proposed to use under
the IPPS in FY 2007 to classify cases. Furthermore, to calculate the
final LTC-DRG relative weights for FY 2007, we proposed that if more
recent data are available (for example, data from the March 2006 update
of the MedPAR file), we would use that data and use the finalized
Version 24.0 of the CMS GROUPER. Table 11 of the Addendum to the FY
2007 IPPS proposed rule lists the proposed LTC-DRGs and their
respective proposed relative weights, proposed geometric ALOS, and
proposed five-sixths of the geometric ALOS that would be effective for
LTCH PPS discharges occurring on or after October 1, 2006 through
September 30, 2007 (71 FR 24394 through 24403).

V. Changes to the LTCH PPS Payment Rates for the 2007 LTCH PPS Rate
Year

A. Overview of the Development of the Payment Rates

The LTCH PPS was effective for a LTCH's first cost reporting period
beginning on or after October 1, 2002. Effective with that cost
reporting period, LTCHs are paid, during a 5-year transition period, on
the basis of an increasing proportion of the LTCH PPS Federal rate and
a decreasing proportion of a hospital's payment under the reasonable
cost-based payment system, unless the hospital makes a one-time
election to receive payment based on 100 percent of the Federal rate
(see Sec. 412.533). New LTCHs (as defined at Sec. 412.23(e)(4)) are
paid based on 100 percent of the Federal rate, with no phase-in
transition payments.
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth in the regulations at Sec. 412.515 through
Sec. 412.532. Below we discuss the factors that will be used to update
the LTCH PPS standard Federal rate for the 2007 LTCH PPS rate year that
will be effective for LTCH discharges occurring on or after July 1,
2006 through June 30, 2007. When we implemented the LTCH PPS in the
August 30, 2002 final rule (67 FR 56029 through 56031), we computed the
LTCH PPS standard Federal payment rate for FY 2003 by updating the best
available (FY 1998 or FY 1999) Medicare inpatient operating and capital
costs per case data, using the excluded hospital market basket.
Section 123(a)(1) of the BBRA requires that the PPS developed for
LTCHs be budget neutral for the initial year of implementation.
Therefore, in calculating the standard Federal rate under Sec.
412.523(d)(2), we set total estimated LTCH PPS payments equal to
estimated payments that would have been made under the reasonable cost-
based payment methodology had the PPS for LTCHs not been implemented.
Section 307(a) of the BIPA specified that the increases to the
hospital-specific target amounts and the cap on the target amounts for
LTCHs for FY 2002 provided for by section 307(a)(1) of the BIPA shall
not be considered in the development and implementation of the LTCH
PPS.
Furthermore, as specified at Sec. 412.523(d)(1), the standard
Federal rate is reduced by an adjustment factor to account for the
estimated proportion of outlier payments under the LTCH PPS to total
estimated LTCH PPS payments (8 percent). For further details on the
development of the FY 2003 standard Federal rate, see the August 30,
2002 LTCH PPS final rule (67 FR 56027 through 56037), and for
subsequent updates to the LTCH PPS Federal rate, refer to the following
final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140),
RY 2005 LTCH PPS final rule (69 FR 25682 through 25684), and RY 2006
LTCH PPS final rule (70 FR 24179 through 24180).

B. LTCH PPS Market Basket

Historically, the Medicare program used a market basket to account
for price increases of the services furnished by providers. The market
basket used for the LTCH PPS includes both operating and capital-
related costs of LTCHs because the LTCH PPS uses a single payment rate
for both operating and capital-related costs. The development of the
LTCH PPS standard Federal rate is discussed in further detail in the
August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033).
In the August 30, 2002 final rule (67 FR 56016 through 56017 and
56030), which implemented the LTCH PPS, we established the use of the
excluded hospital with capital market basket as the LTCH PPS market
basket. The excluded hospital market basket was used to update the
limits on LTCHs' operating costs for inflation under the former
reasonable cost-based (TEFRA) payment system. We explained in that same
final rule that we believe that the use of the excluded hospital market
basket to update LTCHs' costs for inflation was appropriate because the
excluded hospital market basket (with a capital component) measures
price increases of the services furnished by excluded hospitals,
including LTCHs. Since the costs of LTCHs are included in the excluded
hospital market basket, this market basket index, in part, also
reflects the costs of LTCHs. However, in order to capture the total
costs (operating and capital-related) of LTCHs, we added a capital
component to the excluded hospital market basket for use under the LTCH
PPS. We refer to this index as the ``Excluded Hospital

[[Page 27810]]

with Capital'' market basket. Currently, the excluded hospital with
capital market basket used to update LTCH PPS payments is based on 1997
Medicare cost report data and includes Medicare participating
psychiatric, rehabilitation, long term care, cancer, and childrens
hospitals (68 FR 34137). (For further details on the development of the
FY 1997-based excluded hospital with capital market basket used under
the LTCH PPS, see the RY 2004 LTCH PPS final rule (68 FR 34134 through
34137)).
In the RY 2006 LTCH PPS final rule (70 FR 24179), we noted that
based on our research, we did not develop a market basket specific to
LTCH services. Presently, we are still unable to create a separate
market basket specifically for LTCHs due to the small number of
facilities and the limited data that are provided (for instance,
approximately 15 percent of LTCHs reported contract labor cost data for
2002). We noted in that same final rule that we would discuss the use
of the ``Rehabilitation, Psychiatric and Long-Term Care (RPL) market
basket'' under the LTCH PPS, which is currently used under the
inpatient rehabilitation facility (IRF) PPS. The RPL market basket is
based on the operating and capital costs of IRFs, inpatient psychiatric
facilities (IPFs) and LTCHs. Since all IRFs are now paid under the IRF
PPS Federal payment rate, nearly all LTCHs are paid 100 percent of the
Federal rate under the LTCH PPS, and most IPFs are transitioning to
payment based on 100 percent of the Federal per diem payment amount
under the IPF PPS (payments will be based on 100 percent of the Federal
rate for cost reporting periods beginning on or after January 1, 2008),
under the broad authority conferred upon the Secretary by section 123
of the BBRA as amended by section 307(b) of the BIPA to develop the
LTCH PPS, in the RY 2007 LTCH PPS proposed rule (71 FR 4659), we
proposed to adopt the RPL market basket as the appropriate market
basket of goods and services under the LTCH PPS for discharges
occurring on or after July 1, 2006. In that proposed rule, we proposed
that we would adopt the RPL market basket based on FY 2002 cost report
data beginning in the 2007 LTCH PPS rate year, under the LTCH PPS. We
chose to use the FY 2002 Medicare cost reports because these are the
most recent, relatively complete cost data for IRFs, IPFs, and LTCHs
serving Medicare beneficiaries.
As also discussed in that proposed rule, the RPL market basket
reflects the operating and capital cost structures for IRFs, IPFs, and
LTCHs. We proposed to exclude children's hospitals, cancer hospitals,
and religious nonmedical healthcare institutions (RNHCIs) from the RPL
market basket because their payments are based entirely on reasonable
costs subject to rate-of-increase limits established under the
authority of section 1886(b) of the Act, and implemented in Sec.
413.40. Children's hospitals, cancer hospitals, and RNHCIs are not
reimbursed under a PPS. Also, based on FY 2002 data, the cost
structures for these hospitals are noticeably different than the cost
structures of the IRFs, IPFs, and LTCHs. The services offered in IRFs,
IPFs, and LTCHs are typically more labor-intensive than those offered
in cancer hospitals, children's hospitals, and RNHCIs. Therefore, the
compensation cost weights for IRFs, IPFs, and LTCHs are larger than
those in cancer hospitals, children's hospitals, and RNHCIs. In
addition, the depreciation cost weights for IRFs, IPFs, and LTCHs are
noticeably smaller than those for children's hospitals, cancer
hospitals, and RNCHIs. Therefore, including the fact that IRFs, IPFs,
and LTCHs are subject to a PPS while children's hospitals, cancer
hospitals and RNCHIs continue to receive payment based on reasonable
costs, we believe a market basket based on the data of IRFs, IPFs, and
LTCHs is appropriate to use under the LTCH PPS since it is the best
available data that would reflect the cost structures of LTCHs.
Comment: We received several comments supporting our proposal to
adopt the RPL market basket based on FY 2002 cost report data under the
LTCH PPS, beginning in the 2007 LTCH PPS rate year. Along with their
endorsement of this proposal, a few commenters stated that the proposed
capital weight methodology may be skewed. As previously stated in this
rule, we stated in the proposed rule that the depreciation cost weights
for IRFs, IPFs, and LTCHs are smaller than those for children's and
cancer hospitals. The commenter noted that since most LTCHs are ``units
within hospitals'' (that is, hospitals-within-hospitals), the proposed
methodology may be more heavily aligned with a ``unit'' perspective as
proposed to a ``freestanding hospital'' perspective. The commenters
claim that freestanding LTCHs will have higher depreciation costs,
which are probably closer to those associated with children's and
cancer hospitals.
Response: The RPL market basket is based on data from freestanding
IRFs, IPFs, and LTCHs. As a general rule, we do not include hospital-
based facilities in our market baskets because expense data for a
hospital-based facility are influenced by the allocation of overhead
over the entire institution. Due to this method of allocation, total
expenses will be correct, but the expenses of the individual components
may be skewed. The cost structures of freestanding LTCHs should reflect
purchasing patterns of the average LTCH.
Our analysis of depreciation cost weights is based on freestanding
facilities. This depreciation cost weight (depreciation costs as a
percent of total capital costs) for freestanding LTCHs is approximately
57 percent compared to 85 percent for children's and cancer hospitals.
Therefore, we do not believe that the proposed capital weight
methodology is skewed (that is, more heavily aligned with a hospital-
based perspective since they are not included in our market basket).
Rather, we believe the RPL market basket accurately reflects the
capital cost structure of freestanding LTCHs serving Medicare
beneficiaries.
In the following discussion, we provide a background on market
baskets and describe the methodologies we used to develop the operating
and capital portions of the FY 2002-based RPL market basket that we are
adopting for use under the LTCH PPS beginning in RY 2007 under broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA.
1. Overview of the RPL Market Basket
The RPL market basket is a fixed weight, Laspeyres-type price index
that is constructed in three steps. First, a base period is selected
(in this case, FY 2002) and total base period expenditures are
estimated for a set of mutually exclusive and exhaustive spending
categories based upon type of expenditure. Then the proportion of total
costs that each category represents is determined. These proportions
are called cost or expenditure weights. Second, each expenditure
category is matched to an appropriate price or wage variable, referred
to as a price proxy. In nearly every instance, these price proxies are
price levels derived from publicly available statistical series that
are published on a consistent schedule, preferably at least on a
quarterly basis. Finally, the expenditure weight for each cost category
is multiplied by the level of its respective price proxy for a given
period. The sum of these products (that is, the expenditure weights
multiplied by their price levels) for all cost categories yields the
composite index level of the market basket in a given period. Repeating
this step for other periods produces a series of market basket levels
over time. Dividing an

[[Page 27811]]

index level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that time
period.
A market basket is described as a fixed-weight index because it
answers the question of how much it would cost, at another time, to
purchase the same mix of goods and services purchased to provide
hospital services in a base period. The effects on total expenditures
resulting from changes in the quantity or mix of goods and services
(intensity) purchased subsequent to the base period are not measured.
In this manner, the market basket measures only pure price change. Only
when the index is rebased would the quantity and intensity effects be
captured in the cost weights. Therefore, we rebase the market basket
periodically so that cost weights reflect changes in the mix of goods
and services that hospitals purchase (hospital inputs) to furnish
patient care between base periods.
The terms rebasing and revising, while often used interchangeably,
actually denote different activities. Rebasing means moving the base
year for the structure of costs of an input price index (for example,
shifting the base year cost structure from FY 1997 to FY 2002).
Revising means changing data sources, methodology, or price proxies
used in the input price index. In this final rule, we are rebasing and
revising the market basket used to update the LTCH PPS. Specifically,
as noted above in this section and as we proposed in the RY 2007 LTCH
PPS proposed rule (71 FR 4659 through 4666), beginning in the 2007 LTCH
PPS rate year, we are using the FY 2002-based RPL market basket, which
is described in greater detail below in this section.
2. Methodology for the Operating Portion of the RPL Market Basket
The operating portion of the FY 2002-based RPL market basket
consists of several major cost categories derived from the FY 2002
Medicare cost reports for IRFs, IPFs, and LTCHs: Wages, drugs,
professional liability insurance (PLI), and a residual ``all other''
category. We choose to use the FY 2002 Medicare cost reports because
these are the most recent, relatively complete cost data for IRFs,
IPFs, and LTCHs serving Medicare beneficiaries. Generally, if detailed
cost data are not available for these Medicare cost reports, we prefer
to use the IPPS hospital Medicare cost reports to supplement IPF, IRF,
and LTCH data because this is a comprehensive source of cost data for
hospitals serving Medicare beneficiaries. When the IPPS Medicare cost
report data are not available, we choose the best publicly available
data source, such as the Bureau of Economic Analysis Input-Output (I-O)
Tables.
We use the IRF, IPF, and LTCH Medicare cost reports to derive these
major cost categories for the RPL market basket which include wages,
drugs, PLI, and a residual ``all other'' category. As stated above in
this section, we are using FY 2002 as the base year because we believe
this is the most recent, relatively complete year of Medicare cost
report data. Due to insufficient Medicare cost report data for IRFs,
IPFs, and LTCHs, we will develop cost weights for benefits, contract
labor, and blood and blood products using the FY 2002-based IPPS market
basket (70 FR 23384), which we explain in more detail later in this
section. For example, less than 30 percent of IRFs, IPFs, and LTCHs
reported benefit cost data in FY 2002. We noticed an increase in the
cost data for these expense categories over the last 4 years. (We note
that in the future, there may be sufficient IRF, IPF, and LTCH cost
report data to develop the weights for these expenditure categories.)
Since the cost weights for the RPL market basket are based on
facility costs, we are limiting our sample to hospitals with a Medicare
average length of stay (ALOS) within a comparable range of the total
facility ALOS. We believe this provides a more accurate reflection of
the structure of costs for Medicare treatments. Our goal is to measure
cost shares that are reflective of case-mix and practice patterns
associated with providing services to Medicare beneficiaries.
We are using those cost reports for IRFs and LTCHs whose Medicare
ALOS is within 15 percent (that is, 15 percent higher or lower) of the
total facility ALOS for the hospital. This is the same edit applied to
the FY 1992-based and FY 1997-based excluded hospital with capital
market basket. Consistent with the development of the RPL market basket
adopted under the IRF PPS in the FY 2006 IRF PPS final rule (70 FR
47909), we will use 15 percent because it includes those LTCHs and IRFs
whose Medicare ALOS is within approximately 5 days of the facility
ALOS. We believe this edit provides us with a representative sample of
LTCHs and IRFs serving Medicare beneficiaries.
We are using a less stringent measure of Medicare ALOS for IPFs
whose ALOS is within 30 or 50 percent (depending on the total facility
ALOS) of the total facility ALOS. This less stringent edit allows us to
increase our sample size by over 150 reports and produce a cost weight
more consistent with the overall facility. When developing the FY 1997-
based excluded hospital with capital market basket, the edit we applied
to IPFs was based on the best available data at the time.
The detailed cost categories under the residual (that is, the
remaining portion of the market basket after excluding wages and
salaries, drugs, and professional liability cost weights) are derived
from the FY 2002-based IPPS market basket and the 1997 Benchmark I-O
Tables published by the Bureau of Economic Analysis, U.S. Department of
Commerce. The FY 2002-based IPPS market basket was developed using FY
2002 Medicare hospital cost reports with the most recent and detailed
cost data (70 FR 47388). The 1997 Benchmark I-O is the most recent,
comprehensive source of cost data for all hospitals. The RPL cost
weights for benefits, contract labor, and blood and blood products were
derived using the FY 2002-based IPPS market basket. For example, the
ratio of the benefit cost weight to the wages and salaries cost weight
in the FY 2002-based IPPS market basket was applied to the RPL wages
and salaries cost weight to derive a benefit cost weight for the RPL
market basket. The remaining RPL operating cost categories were derived
using the 1997 Benchmark I-O Tables, aged to 2002 using relative price
changes. (The methodology we used to age the data involves applying the
annual price changes from the price proxies to the appropriate cost
categories. We repeat this practice for each year.) Therefore, using
this methodology, roughly 59 percent of the RPL market basket is
accounted for by wages, drugs, and PLI data from FY 2002 Medicare cost
report data for IRFs, IPFs, and LTCHs.
Comment: Several commenters propose that we regularly re-analyze
the RPL cost report data, which are the basis of the RPL market basket.
They note that the methodology used for the RPL market basket includes
data from the IPPS hospital market basket. These commenters encouraged
us to work with providers to improve the cost reports from IRFs, IPFs,
and LTCHs to ensure that the data used for the RPL market basket
represent only the types of excluded hospitals for which the RPL market
basket was developed. Furthermore, they believe that improving the data
reported on the cost reports of IRFs, IPFs, and LTCHs would not only
refine the RPL market basket but also would improve the accuracy of the
labor-related share to which the wage index is applied.
Response: As noted above in this section, we rely on the IPPS
hospital cost report data to supplement the IRF, IPF, and LTCH Medicare
cost report

[[Page 27812]]

data for benefits, contract labor, and blood and blood products. For
example, the ratio of the benefit cost weight to the wages and salaries
cost weight in the FY 2002-based IPPS market basket is applied to the
RPL wages and salaries cost weight to derive a benefit cost weight for
the RPL market basket. We did not directly use the IPPS Medicare cost
report data, rather we used these data to determine the relationships
between benefits, contract labor, and blood and blood products with
wages and salaries. The wages and salaries cost weight in the RPL
market basket is derived using the IRF, IPF and LTCH Medicare cost
reports and accounts for 50 percent of the RPL market basket. As noted
above in this section and as discussed in the RY 2007 LTCH PPS proposed
rule (71 FR 4660), due to data limitations, this was the best
methodology for developing the latter cost weights.
We agree with the commenters that improving the data reported on
the cost reports of IRFs, IPFs, and LTCHs could improve the RPL market
basket and labor-related share. We have noticed this data improvement
on other provider-type cost reports. Therefore, we encourage IRFs,
IPFs, and LTCHs to fully complete their cost reports; this would help
us in developing the most complete and accurate market basket possible.
We will continue to analyze RPL cost report data on a regular basis.
The following is a summary outlining the choice of the proxies we
used for the operating portion of the market basket. The price proxies
for the capital portion are described in more detail in section V.B.3.
of this preamble. With the exception of the Professional Liability
proxy, all the price proxies for the operating portion of the RPL
market basket are based on Bureau of Labor Statistics (BLS) data and
are grouped into one of the following BLS categories:
Producer Price Indexes (PPIs) measure price changes for
goods sold in other than retail markets. PPIs are preferable price
proxies for goods that hospitals purchase as inputs in producing their
outputs because the PPIs would better reflect the prices faced by
hospitals. For example, we will use a special PPI for prescription
drugs, rather than the Consumer Price Index (CPI) for prescription
drugs because hospitals generally purchase drugs directly from the
wholesaler. The PPIs that we use measure price change at the final
stage of production.
Consumer Price Indexes (CPIs) measure changes in the
prices of final goods and services bought by the typical consumer.
Because they may not represent the price faced by a producer, we use
CPIs only if an appropriate PPI were not available, or if the
expenditures were more similar to those of retail consumers in general
rather than purchases at the wholesale level. For example, the CPI for
food purchases away from home is used as a proxy for contracted food
services.
Employment Cost Indexes (ECIs) measure the rate of change
in employee wage rates and employer costs for employee benefits per
hour worked. These indexes are fixed-weight indexes and strictly
measure the change in wage rates and employee benefits per hour.
Appropriately, they are not affected by shifts in employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Widely accepted statistical methods ensure that the data
were collected and aggregated in a way that can be replicated. Low
sampling variability is desirable because it indicates that the sample
reflects the typical members of the population. (Sampling variability
is variation that occurs by chance because a sample was surveyed rather
than the entire population.)
Timeliness implies that the proxy is published regularly,
preferably at least once a quarter. The market baskets are updated
quarterly, and therefore, it is important that the underlying price
proxies be up-to-date, reflecting the most recent data available. We
believe that using proxies that are published regularly (at least
quarterly, when possible) helps to ensure that we are using the most
recent data available to update the market basket. We strive to use
publications that are disseminated frequently because we believe that
this is an optimal way to stay abreast of the most current data
available. Availability means that the proxy is publicly available. We
prefer that our proxies are publicly available because this will help
ensure that our market basket updates are as transparent to the public
as possible. In addition, this enables the public to be able to obtain
the price proxy data on a regular basis.
Finally, relevance means that the proxy is applicable and
representative of the cost category weight to which it is applied. The
CPIs, PPIs, and ECIs selected by us for this final rule meet these
criteria. Therefore, we believe that they continue to be the best
measure of price changes for the cost categories to which they would be
applied.
We note that the proxies are the same as those used for the FY
1997-based excluded hospital with capital market basket, which is
currently used under the LTCH PPS, and are the same proxies as those
used for the FY 2002-based excluded hospital market basket that is used
to update the reasonable cost-based portion of LTCHs' blended
transition payments (70 FR 47399 through 47403). Because these proxies
meet our criteria of reliability, timeliness, availability, and
relevance, we believe they continue to be the best measure of price
changes for the cost categories. For further discussion on the FY 1997-
based excluded hospital with capital market basket, see the RY 2004
LTCH PPS final rule (68 FR 34134 through 34136). For further discussion
on the FY 2002-based excluded hospital market basket, see the FY 2006
IPPS final rule (70 FR 47400 through 47403).
Table 2 sets forth the complete 2002-based RPL market basket
including cost categories, weights, and price proxies for the operating
portion of the market basket. The price proxies for the capital portion
are described in more detail in the capital methodology section. For
comparison purposes, the corresponding FY 1997-based excluded hospital
with capital market basket, which is currently used under the LTCH PPS,
is also listed.
Wages and salaries are 52.895 percent of total costs for the FY
2002-based RPL market basket compared to 47.335 percent for the FY
1997-based excluded hospital with capital market basket. Employee
benefits are 12.982 percent for the FY 2002-based RPL market basket
compared to 10.244 percent for the FY 1997-based excluded hospital with
capital market basket. As a result, compensation costs (wages and
salaries plus employee benefits) for the FY 2002-based RPL market
basket are 65.877 percent of costs compared to 57.579 percent for the
FY 1997-based excluded hospital with capital market basket. Of the 8
percentage-point difference between the compensation shares,
approximately 3 percentage points are due to the new base year (FY 2002
instead of FY 1997), 3 percentage points are due to revised LOS edit
(that is, including only IRFs and LTCHs whose Medicare ALOS is within
15 percent of the total facility ALOS for the hospital and including
only IPFs whose Medicare ALOS in within 30 or 50 percent of the total
facility ALOS), and the remaining 2 percentage points are due to the
exclusion of other types of IPPS-excluded hospitals (that is, only
including IPFs, IRFs, and LTCHs in the market basket and excluding
childrens hospitals, cancer hospitals, and RNCHIs).

[[Page 27813]]

Table 2.--FY 2002-Based RPL Market Basket Cost Categories, Weights, and Proxies With FY 1997-Based Excluded
Hospital With Capital Market Basket Used for Comparison
----------------------------------------------------------------------------------------------------------------
FY 1997-based
excluded FY 2002-based
Expense categories hospital with RPL market FY 2002 RPL market basket price
capital market basket proxies
basket
----------------------------------------------------------------------------------------------------------------
Total...................................... 100.000 100.000
Compensation....................... 57.579 65.877
Wages and Salaries *................... 47.335 52.895 ECI--Wages and Salaries, Civilian
Hospital Workers.
Employee Benefits *.................... 10.244 12.982 ECI--Benefits, Civilian Hospital
Workers.
Professional Fees, Non-Medical............. 4.423 2.892 ECI--Compensation for Professional,
Specialty & Technical Workers.
Utilities.................................. 1.180 0.656
Electricity............................ 0.726 0.351 PPI--Commercial Electric Power.
Fuel Oil, Coal, etc.................... 0.248 0.108 PPI--Refined Petroleum Products.
Water and Sewage....................... 0.206 0.197 CPI-U--Water & Sewage Maintenance.
Professional Liability Insurance........... 0.733 1.161 CMS Professional Liability Premium
Index.
All Other Products and Services............ 27.117 19.265
All Other Products..................... 17.914 13.323
Pharmaceuticals........................ 6.318 5.103 PPI Prescription Drugs.
Food: Direct Purchase.................. 1.122 0.873 PPI Processed Foods & Feeds.
Food: Contract Service................. 1.043 0.620 CPI--U Food Away From Home.
Chemicals.............................. 2.133 1.100 PPI Industrial Chemicals.
Blood and Blood Products **............ 0.748
Medical Instruments.................... 1.795 1.014 PPI Medical Instruments &
Equipment.
Photographic Supplies.................. 0.167 0.096 PPI Photographic Supplies.
Rubber and Plastics.................... 1.366 1.052 PPI Rubber & Plastic Products.
Paper Products......................... 1.110 1.000 PPI Converted Paper & Paperboard
Products.
Apparel................................ 0.478 0.207 PPI Apparel.
Machinery and Equipment................ 0.852 0.297 PPI Machinery & Equipment.
Miscellaneous Products................. 0.783 1.963 PPI Finished Goods less Food &
Energy.
All Other Services......................... 9.203 5.942
Telephone.............................. 0.348 0.240 CPI-U Telephone Services.
Postage................................ 0.702 0.682 CPI-U Postage.
All Other: Labor Intensive............. 4.453 2.219 ECI--Compensation for Private
Service Occupations.
All Other: Non-labor Intensive......... 3.700 2.800 CPI-U All Items.
Capital-Related Costs...................... 8.968 10.149
Depreciation........................... 5.586 6.186
Fixed Assets........................... 3.503 4.250 Boeckh Institutional Construction
23-year useful life.
Movable Equipment...................... 2.083 1.937 WPI Machinery & Equipment 11-year
useful life.
Interest Costs......................... 2.682 2.775
Nonprofit.............................. 2.280 2.081 Average yield on domestic municipal
bonds (source: Moody's Aaa bonds
vintage).
For Profit............................. 0.402 0.694 Average yield on Moody's AAA bonds
vintage weighted (23 years).
Other Capital-Related Costs............ 0.699 1.187 CPI-U Residential Rent.
----------------------------------------------------------------------------------------------------------------
* Labor-related.
** Blood and blood-related products are included in miscellaneous products.
Note: Due to rounding, weights may not sum to total.

The following is an explanation of the expense categories from
Table 2.
a. Wages and Salaries
For measuring the price growth of wages in the FY 2002-based RPL
market basket, consistent with our proposal, we will use the ECI for
wages and salaries for civilian hospital workers as the proxy for wages
in the RPL market basket. The RPL market basket uses the BLS'
Employment Cost Indexes (ECIs) as proxies for wages and salaries, and
benefits for civilian industry workers classified in the Standard
Industrial Code (SIC) 806, Hospitals. However, beginning April 28,
2006, with the publication of March 2006 data, the ECIs will be
converted from the SIC system to the North American Industrial
Classification System (NAICS). The NAICS-based ECI for hospitals (NAICS
622) is similar (at least 90 percent identical) to the SIC-based ECI
for hospitals. Therefore, when they are available, we will use the
NAICS-based ECIs for hospitals as proxies to reflect the rate-of-price
change for the wages and salaries and employee benefits cost categories
in the 2002-based RPL market basket. The RPL market basket and labor-
related share in this final rule will use the most recent data
available from BLS. We do not expect the RPL market basket and labor-
related share to change significantly when the conversion from the SIC
system to the NAICS system takes place.
b. Employee Benefits
The FY 2002-based RPL market basket uses the ECI for employee
benefits for civilian hospital workers.
c. Nonmedical Professional Fees
The ECI for compensation for professional and technical workers in
private industry will be applied to this category since it includes
occupations such as management and consulting, legal, accounting, and
engineering services.
d. Fuel, Oil, Coal, and Gasoline
The percentage change in the price of gas fuels as measured by the
PPI (Commodity Code 0552) will be applied to this component.

[[Page 27814]]

e. Electricity
The percentage change in the price of commercial electric power as
measured by the PPI (Commodity Code 0542) will be applied to
this component.
f. Water and Sewage
The percentage change in the price of water and sewage maintenance
as measured by the CPI for all urban consumers (CPI Code
CUUR0000SEHG01) will be applied to this component.
g. Professional Liability Insurance (PLI)
The FY 2002-based RPL market basket will use the percentage change
in hospital PLI premiums as estimated by the CMS Hospital Professional
Liability Index for the proxy of this category. In the FY 1997-based
excluded hospital with capital market basket, the same proxy was used.
We continue to research options for improving our proxy for PLI. This
research includes exploring various options for expanding our current
survey, including the identification of another entity that will be
willing to work with us to collect more complete and comprehensive
data. We are also exploring other options such as third party or
industry data that might assist us in creating a more precise measure
of PLI premiums. At this time, we have not identified a preferred
option, therefore there is no change in the proxy in this final rule.
h. Pharmaceuticals
The percentage change in the price of prescription drugs as
measured by the PPI (PPI Code PPI32541DRX) will be used as a
proxy for this cost category. This is a special index produced by BLS
as a proxy in the 1997-based excluded hospital with capital market
basket.
i. Food: Direct Purchases
The percentage change in the price of processed foods and feeds as
measured by the PPI (Commodity Code 02) will be applied to
this component.
j. Food: Contract Service
The percentage change in the price of food purchased away from home
as measured by the CPI for all urban consumers (CPI Code
CUUR0000SEFV) will be applied to this component.
k. Chemicals
The percentage change in the price of industrial chemical products
as measured by the PPI (Commodity Code 061) will be applied to
this component. While the chemicals hospitals purchase include
industrial as well as other types of chemicals, the industrial
chemicals component constitutes the largest proportion by far. Thus we
believe that Commodity Code 061 is the appropriate proxy.
l. Medical Instruments
The percentage change in the price of medical and surgical
instruments as measured by the PPI (Commodity Code 1562) will
be applied to this component.
m. Photographic Supplies
The percentage change in the price of photographic supplies as
measured by the PPI (Commodity Code 1542) will be applied to
this component.
n. Rubber and Plastics
The percentage change in the price of rubber and plastic products
as measured by the PPI (Commodity Code 07) will be applied to
this component.
o. Paper Products
The percentage change in the price of converted paper and
paperboard products as measured by the PPI (Commodity Code
0915) will be used.
p. Apparel
The percentage change in the price of apparel as measured by the
PPI (Commodity Code 381) will be applied to this component.
q. Machinery and Equipment
The percentage change in the price of machinery and equipment as
measured by the PPI (Commodity Code 11) will be applied to
this component.
r. Miscellaneous Products
The percentage change in the price of all finished goods less food
and energy as measured by the PPI (Commodity Code SOP3500)
will be applied to this component. Using this index will remove the
double-counting of food and energy prices, which are captured elsewhere
in the market basket. The weight for this cost category is higher, in
part, than in the 1997-based index because the weight for blood and
blood products (1.188) is added to it. In the 1997-based excluded
hospital with capital market basket, we included a separate cost
category for blood and blood products, using the BLS PPI for blood and
derivatives as a price proxy. A review of recent trends in the PPI for
blood and derivatives suggests that its movements may not be consistent
with the trends in blood costs faced by hospitals. While this proxy did
not match exactly with the products hospitals are buying, its trend
over time appears to be reflective of the historical price changes of
blood purchased by hospitals. However, an apparent divergence between
the BLS PPI for blood and derivatives and trends in blood costs faced
by hospitals over recent years led us to reevaluate whether the PPI for
blood and derivatives was an appropriate measure of the changing price
of blood. As discussed in the RY 2007 LTCH PPS proposed rule (71 FR
4663), we ran test market baskets classifying blood into three separate
cost categories: Blood and blood products; contained within chemicals
as was done for the 1992-based excluded hospital with capital market
basket; and, within miscellaneous products. These categories use as
proxies the following PPIs: The PPI for blood and blood products, the
PPI for chemicals, and the PPI for finished goods less food and energy,
respectively. Of these three proxies, the PPI for finished goods less
food and energy moved most like the recent blood cost and price trends.
In addition, the impact on the overall market basket by using different
proxies for blood was negligible, mostly due to the relatively small
weight for blood in the market basket.
Therefore, we are using the PPI for finished goods less food and
energy for the blood proxy because we believe it more appropriately
proxies price changes (not quantities or required tests) associated
with blood purchased by hospitals because it moved most like the recent
blood cost and price trends. (We note that we will continue to evaluate
this proxy for its appropriateness and will explore the development of
alternative price indexes to proxy the price changes associated with
this cost for presentation in a future proposed rule.)
s. Telephone
The percentage change in the price of telephone services as
measured by the CPI for all urban consumers (CPI Code
CUUR0000SEED) will be applied to this component.
t. Postage
The percentage change in the price of postage as measured by the
CPI for all urban consumers (CPI Code CUUR0000SEEC01) will be
applied to this component.
u. All Other Services, Labor Intensive
The percentage change in the ECI for compensation paid to service
workers employed in private industry will be applied to this component.
v. All Other Services, Nonlabor Intensive
The percentage change in the all items component of the CPI for all
urban

[[Page 27815]]

consumers (CPI Code CUUR0000SA0) will be applied to this
component.
3. Methodology for the Capital Portion of the RPL Market Basket
Unlike for the operating costs of the FY 2002-based RPL market
basket, we do not have IRF, IPF, and LTCH FY 2002 Medicare cost report
data for the capital cost weights, due to a change in the FY 2002
reporting requirements. Rather, as we proposed, in this final rule we
used these hospitals' expenditure data for the capital cost categories
of depreciation, interest, and other capital expenses for FY 2001, and
age the data to a FY 2002 base year using relevant price proxies. As
explained in the RY 2007 LTCH PPS proposed rule (71 FR 4663), we
believe this is the best approach since these data are the most similar
to the capital cost structures of those IRFs, IPFs, and LTCHs serving
Medicare beneficiaries that require inpatient hospital services.
As we proposed, in this final rule we calculated weights for the
RPL market basket capital costs using the same set of Medicare cost
reports used to develop the operating share for IRFs, IPFS, and LTCHs
in order to use consistent expense data in developing the weights for
both operating and capital costs. The resulting capital weight for the
FY 2002 base year is 10.149 percent. This is based on FY 2001 Medicare
cost report data for IRFs, IPFs, and LTCHs, aged to FY 2002 using
relevant price proxies.
Lease expenses are not a separate cost category in the market
basket, but are distributed among the cost categories of depreciation,
interest, and other, reflecting the assumption that the underlying cost
structure of leases is similar to capital costs in general. As
explained in the RY 2007 LTCH PPS proposed rule (71 FR 4664), we assume
10 percent of lease expenses are overhead and assigned them to the
other capital expenses cost category as overhead. We base this
assignment of 10 percent of lease expenses to overhead on the common
assumption that overhead is 10 percent of costs. The remaining lease
expenses are distributed to the three cost categories based on the
weights of depreciation, interest, and other capital expenses not
including lease expenses.
Depreciation contains two subcategories: Building and fixed
equipment, and movable equipment. The split between building and fixed
equipment and movable equipment was determined using the FY 2001
Medicare cost reports for IRFs, IPFs, and LTCHs. As explained in the RY
2007 LTCH PPS proposed rule (71 FR 4664), we believe this is the best
available data source because it reflects the capital cost structures
of those IRFs, IPFs, and LTCHs serving Medicare beneficiaries. In the
FY 2003 IPPS final rule, we also used this methodology to compute the
1997-based index (August 1, 2002; 67 FR 50044).
The total interest expense cost category is split between the
government/nonprofit and for-profit hospitals. The 1997-based excluded
hospital with capital market basket allocated 85 percent of the total
interest cost weight to the government nonprofit interest, proxied by
average yield on domestic municipal bonds, and 15 percent to for-profit
interest, proxied by average yield on Moody's Aaa bonds.
As we proposed, for this final rule we derive the split using the
relative FY 2001 Medicare cost report data for PPS hospitals on
interest expenses for the government/nonprofit and for-profit
hospitals. Due to insufficient Medicare cost report data for IPFs,
IRFs, and LTCHs, we used the same split used in the IPPS capital input
price index, which is 75 percent of the total interest cost weight of
the government/non-profit interest and 25 percent of for-profit
interest. As explained in the RY 2007 LTCH PPS proposed rule (71 FR
4664), we believe that this split reflects the latest relative cost
structure of interest expenses for hospitals because it is based on the
most recent complete hospital cost report data and, therefore, we use a
75-25 split to allocate interest expenses to government/nonprofit and
for-profit hospitals' interest as stated in the FY 2006 IPPS final rule
(70 FR 47408).
Since capital is acquired and paid for over time, capital expenses
in any given year are determined by both past and present purchases of
physical and financial capital. The vintage-weighted capital index is
intended to capture the long-term consumption of capital, using vintage
weights for depreciation (physical capital) and interest (financial
capital). These vintage weights reflect the purchase patterns of
building and fixed equipment and movable equipment over time.
Depreciation and interest expenses are determined by the amount of past
and current capital purchases. Therefore, we are using the vintage
weights to compute vintage-weighted price changes associated with
depreciation and interest expense.
Vintage weights are an integral part of the FY 2002-based RPL
market basket. Capital costs are inherently complicated and are
determined by complex capital purchasing decisions, over time, based on
factors such as interest rates and debt financing. In addition, capital
is depreciated over time instead of being consumed in the same period
it is purchased. The capital portion of the FY 2002-based RPL market
basket reflects the annual price changes associated with capital costs,
and is a useful simplification of the actual capital investment
process. As explained in the RY 2007 LTCH PPS proposed rule (71 FR
4664), by accounting for the vintage nature of capital, we are able to
provide an accurate, stable annual measure of price changes. Annual
nonvintage price changes for capital are unstable due to the volatility
of interest rate changes. Therefore, they do not reflect the actual
annual price changes for Medicare capital-related costs. The capital
component of the FY 2002-based RPL market basket will reflect the
underlying stability of the capital acquisition process and provide
hospitals with the ability to plan for changes in capital payments.
To calculate the vintage weights for depreciation and interest
expenses, we need a time series of capital purchases for building and
fixed equipment and movable equipment. We found no single source that
provides the best time series of capital purchases by hospitals for all
of the above components of capital purchases. As explained in the RY
2007 LTCH PPS proposed rule (71 FR 4664), the early Medicare Cost
Reports are not sufficiently completed to have capital data to meet
this need. While the AHA Panel Survey provides a consistent database
back to 1963, it does not provide annual capital purchases. However,
the AHA Panel Survey provides a time series of depreciation expenses
through 1997, which could be used to infer capital purchases over time.
From 1998 to 2001, hospital depreciation expenses were calculated by
multiplying the AHA Annual Survey total hospital expenses by the ratio
of depreciation to total hospital expenses from the Medicare cost
reports. Beginning in 2001, the AHA Annual Survey began collecting
depreciation expenses. We note that we hope to be able to propose to
use these data in proposed rebasings that would be presented in future
proposed rules.
In order to estimate capital purchases from AHA data on
depreciation and interest expenses, the expected life for each cost
category (building and fixed equipment, movable equipment, and debt
instruments) is needed. Due to insufficient Medicare cost report data
for IPFs, IRFs, and LTCHs, we use FY 2001 Medicare Cost Reports for
IPPS hospitals to determine the expected life of building and fixed
equipment and movable equipment. As explained in the RY 2007 LTCH PPS
proposed rule (71 FR 4664), we believe this data source

[[Page 27816]]

reflects the latest relative cost structure of depreciation expenses
for all hospital types, including IPFs, IRFs, and LTCHs, and is the
best available data at this time. The expected life of any piece of
equipment can be determined by dividing the value of the asset
(excluding fully depreciated assets) by its current year depreciation
amount. This calculation yields the estimated useful life of an asset
if depreciation were to continue at current year levels, assuming
straight-line depreciation. From the FY 2001 Medicare cost reports for
IPPS hospitals, the expected life of building and fixed equipment was
determined to be 23 years, and the expected life of movable equipment
was determined to be 11 years.
As we proposed, for this final rule we also used the fixed and
movable weights derived from FY 2001 Medicare cost reports for IPFs,
IRFs, and LTCHs to separate the depreciation expenses into annual
amounts of building and fixed equipment depreciation and movable
equipment depreciation because this is the best available data source.
By multiplying the annual depreciation amounts by the expected life
calculations from the FY 2001 Medicare cost reports, year-end asset
costs for building and fixed equipment and movable equipment are
determined. Then, we calculate a time series back to 1963 of annual
capital purchases by subtracting the previous year asset costs from the
current year asset costs. From this capital purchase time series we are
able to calculate the vintage weights for building and fixed equipment,
movable equipment, and debt instruments. An explanation of each of
these sets of vintage weights follows.
As we proposed, for this final rule for building and fixed
equipment vintage weights, the real annual capital purchase amounts for
building and fixed equipment derived from the AHA Panel Survey are
used. The real annual purchase amount was used to capture the actual
amount of the physical acquisition, net of the effect of price
inflation. This real annual purchase amount for building and fixed
equipment was produced by deflating the nominal annual purchase amount
by the building and fixed equipment price proxy, the Boeckh
Institutional Construction Index. This is the same proxy used for the
FY 1997-based excluded hospital with capital market basket. As
explained in the RY 2007 LTCH PPS proposed rule (71 FR 4664), we
believe this proxy continues to meet our criteria of reliability,
timeliness, availability, and relevance (discussed previously in this
final rule). Since building and fixed equipment has an expected life of
23 years, the vintage weights for building and fixed equipment are
deemed to represent the average purchase pattern of building and fixed
equipment over 23-year periods. With real building and fixed equipment
purchase estimates back to 1963, 16 23-year periods could be averaged
to determine the average vintage weights for building and fixed
equipment that are representative of average building and fixed
equipment purchase patterns over time. Vintage weights for each 23-year
period are calculated by dividing the real building and fixed capital
purchase amount in any given year by the total amount of purchases in
the 23-year period. This calculation is done for each year in the 23-
year period, and for each of the 16 23-year periods. The average of
each year across the 16 23-year periods is used to determine the 2002
average building and fixed equipment vintage weights.
For movable equipment vintage weights, as we proposed, for this
final rule the real annual capital purchase amounts for movable
equipment derived from the AHA Panel Survey are used to capture the
actual amount of the physical acquisition, net of price inflation. This
real annual purchase amount for movable equipment is calculated by
deflating the nominal annual purchase amount by the movable equipment
price proxy, the PPI for Machinery and Equipment. This is the same
proxy used for the FY 1997-based excluded hospital with capital market
basket. We believe this proxy, which meets our criteria, is the best
measure of price changes for this cost category. Since movable
equipment has an expected life of 11 years, the vintage weights for
movable equipment are deemed to represent the average purchase pattern
of movable equipment over an 11-year period. With real movable
equipment purchase estimates available back to 1963, 28 11-year periods
could be averaged to determine the average vintage weights for movable
equipment that are representative of average movable equipment purchase
patterns over time. Vintage weights for each 11-year period are
calculated by dividing the real movable capital purchase amount for any
given year by the total amount of purchases in the 11-year period. This
calculation is done for each year in the 11-year period, and for each
of the 28 11-year periods. The average of the 28 11-year periods is
used to determine the FY 2002 average movable equipment vintage
weights.
As we proposed, for this final rule for interest vintage weights,
the nominal annual capital purchase amounts for total equipment
(building and fixed, and movable) derived from the AHA Panel and Annual
Surveys are used. Nominal annual purchase amounts are used to capture
the value of the debt instrument. Since hospital debt instruments have
an expected life of 23 years, the vintage weights for interest are
deemed to represent the average purchase pattern of total equipment
over 23-year periods. With nominal total equipment purchase estimates
available back to 1963, 16 23-year periods could be averaged to
determine the average vintage weights for interest that are
representative of average capital purchase patterns over time. Vintage
weights for each 23-year period are calculated by dividing the nominal
total capital purchase amount for any given year by the total amount of
purchases in the 23-year period. This calculation is done for each year
in the 23-year period and for each of the 16 23-year periods. The
average of the 16 23-year periods is used to determine the FY 2002
average interest vintage weights. The vintage weights for the index are
presented in Table 3.
In addition to the price proxies for depreciation and interest
costs described above in the vintage weighted capital section, as we
proposed, for this final rule we used the CPI-U for Residential Rent as
a price proxy for other capital-related costs. Other capital-related
costs are mainly composed of taxes and insurance. There is no price
proxy for these specific costs; however, we believe the price changes
associated with these costs will be reflected in the price changes of
residential rent because rent is assumed to move with taxes and
insurance in order to maintain profit margins. The price proxies for
each of the capital cost categories are the same as those used for the
FY 2003 IPPS final rule (67 FR 50044) capital input price index.

[[Page 27817]]

Table 3.--CMS FY 2002-Based RPL Market Basket Capital Vintage Weights
----------------------------------------------------------------------------------------------------------------
Interest:
Fixed assets Movable capital-
Year (23 year assets (11 related (23
weights) year weights) year weights)
----------------------------------------------------------------------------------------------------------------
1............................................................... 0.021 0.065 0.010
2............................................................... 0.022 0.071 0.012
3............................................................... 0.025 0.077 0.014
4............................................................... 0.027 0.082 0.016
5............................................................... 0.029 0.086 0.019
6............................................................... 0.031 0.091 0.023
7............................................................... 0.033 0.095 0.026
8............................................................... 0.035 0.100 0.029
9............................................................... 0.038 0.106 0.033
10.............................................................. 0.040 0.112 0.036
11.............................................................. 0.042 0.117 0.039
12.............................................................. 0.045 .............. 0.043
13.............................................................. 0.047 .............. 0.048
14.............................................................. 0.049 .............. 0.053
15.............................................................. 0.051 .............. 0.056
16.............................................................. 0.053 .............. 0.059
17.............................................................. 0.056 .............. 0.062
18.............................................................. 0.057 .............. 0.064
19.............................................................. 0.058 .............. 0.066
20.............................................................. 0.060 .............. 0.070
21.............................................................. 0.060 .............. 0.071
22.............................................................. 0.061 .............. 0.074
23.............................................................. 0.061 .............. 0.076
-----------------------------------------------
Total....................................................... 1.000 1.000 1.000
----------------------------------------------------------------------------------------------------------------

4. Market Basket Estimate for the 2007 LTCH PPS Rate Year
As discussed previously in this final rule, beginning in the 2007
LTCH PPS rate year, we are adopting the FY 2002-based RPL market basket
as the appropriate market basket of goods and services under the LTCH
PPS. As discussed in greater detail below, we are implementing the
proposed zero percent reduction to the LTCH PPS Federal rate for the
2007 LTCH PPS rate year as discussed in the RY 2007 LTCH PPS proposed
rule (71 FR 4667 through 4670), rather than using an update based
solely on the most recent estimate of the LTCH PPS market basket as we
have done in the past. In addition, as we discuss in section V.D.1.c.
of this preamble, as we proposed, for this final rule we are revising
the LTCH PPS labor-related share based on the RPL market basket. In
Table 4, we are presenting a comparison of the most recent estimates of
the increase to the current LTCH PPS market basket (that is, the FY
1997-based excluded hospital with capital market basket) and the FY
2002-based RPL market basket.
In the RY 2007 LTCH PPS proposed rule (71 FR 4666), the most recent
estimate of the RPL market basket at that time for July 1, 2006 through
June 30, 2007 (the 2007 LTCH PPS rate year) was 3.6 percent, which was
based on Global Insight's 3rd quarter 2005 forecast with history
through the 2nd quarter of 2005. In this final rule, consistent with
our historical practice of using the most recent available data, based
on Global Insight's 1st quarter 2006 forecast with history through the
4th quarter of 2005, the most recent estimate of the RPL market basket
for July 1, 2006 through June 30, 2007 (the 2007 LTCH PPS rate year) is
3.4 percent. Global Insight, Inc. is a nationally recognized economic
and financial forecasting firm that contracts with CMS to forecast the
components of the market baskets. Using the current FY 1997-based
excluded hospital with capital market basket, Global Insight's 1st
quarter 2006 forecast, with history through the 4th quarter of 2005,
for the 2007 LTCH PPS rate year is also 3.4 percent. Table 4 compares
the FY 2002-based RPL market basket and the FY 1997-based excluded
hospital with capital market basket percent changes. For both the
historical and forecasted periods between FY 2000 and FY 2008, the
difference between the two market baskets is minor with the exception
of FY 2002, where the FY 2002-based RPL market basket increased \3/10\
of a percentage point higher than the FY 1997-based excluded hospital
with capital market basket. This is primarily due to the FY 2002-based
RPL having a larger compensation (that is, the sum of wages and
salaries and benefits) cost weight than the FY 1997-based index and the
price changes associated with compensation costs increasing much faster
than the prices of other market basket components. Also contributing is
the ``all other nonlabor intensive'' cost weight, which is smaller in
the FY 2002-based RPL market basket than in the FY 1997-based index, as
well as the slower price changes associated with these costs.

[[Page 27818]]

Table 4.--FY 2002-Based RPL Market Basket and FY 1997-Based Excluded
Hospital with Capital Market Basket, Percent Changes: 2000-2008
------------------------------------------------------------------------
FY 1997-based
Rebased FY 2002- excluded
Fiscal year (FY) based RPL market hospital market
basket basket with
capital
------------------------------------------------------------------------
Historical data:
RY 2001......................... 3.8 3.9
RY 2002......................... 4.1 3.8
RY 2003......................... 3.8 3.7
RY 2004......................... 3.6 3.6
RY 2005......................... 3.8 4.0
Average RY 2001-2005........ 3.8 3.8
Forecast:
RY 2006......................... 3.6 3.8
RY 2007......................... 3.4 3.4
RY 2008......................... 3.2 3.1
RY 2009......................... 2.9 2.8
Average RY 2006-2009........ 3.3 3.3
------------------------------------------------------------------------
Source: Global Insight, Inc. 1st Qtr 2006, @USMACRO/CNTL0306 @CISSIM/
CNTL08R3.SIM

C. Standard Federal Rate for the 2007 LTCH PPS Rate Year

1. Background
Under the existing regulations at Sec. 412.523(c)(3)(ii), we
update the standard Federal rate annually to adjust for the most recent
estimate of the projected increases in prices for LTCH inpatient
hospital services. We established this regulation in the August 30,
2002 final rule (67 FR 56030), which implemented the LTCH PPS, because
at that time we believed that was the most appropriate method for
updating the LTCH PPS Standard Federal rate annually for years after FY
2003. When we moved the date of the annual update of the LTCH PPS from
October 1 to July 1 in the RY 2004 LTCH PPS final rule (68 FR 34138),
we revised Sec. 412.523(c)(3) to specify that for LTCH PPS rate years
beginning on or after July 1, 2003, the annual update to the standard
Federal rate for the LTCH PPS would be equal to the previous rate
year's Federal rate updated by the most recent estimate of increases in
the appropriate market basket of goods and services included in covered
inpatient LTCH services because, at that time, we continued to believe
that was the most appropriate method for updating the LTCH PPS Standard
Federal rate annually for years after RY 2004. As established in the RY
2006 LTCH PPS final rule (70 FR 24179), based on the most recent
estimate of the excluded hospital with capital market basket, adjusted
to account for the change in the LTCH PPS rate year update cycle, the
current LTCH PPS standard Federal rate which is effective from July 1,
2005 through June 30, 2006 (the 2006 LTCH PPS rate year) is $38,086.04.
In the RY 2007 LTCH PPS proposed rule (71 FR 4667 through 4670), we
explain how we developed the proposed standard Federal rate for the
2007 LTCH PPS rate year. Specifically, we explained our rationale,
which was based on our ongoing monitoring activities, for proposing a
zero percent update to the standard Federal rate for the 2007 LTCH PPS
rate year, which was based on the most recent estimate in the RPL
market basket offset by an adjustment for changes in coding practices,
rather than proposing to solely use the most recent estimate of the
proposed RPL market basket as the update factor for the Federal rate
for the upcoming rate year. Therefore, in that proposed rule, we
proposed a standard Federal rate for the 2007 LTCH PPS rate year of
$38,086.04. In the discussion that follows, we explain how we developed
the final standard Federal rate for the 2007 LTCH PPS rate year.
Specifically, we explain our rationale, which is based on our ongoing
monitoring activities, for the zero percent update to the standard
Federal rate for the 2007 LTCH PPS rate year, which is based on the
most recent estimate in the RPL market basket offset by an adjustment
for changes in coding practices as discussed in greater detail below,
rather than solely using the most recent estimate of the RPL market
basket as the update factor for the Federal rate for the upcoming rate
year. Thus, the standard Federal rate for the 2007 LTCH PPS rate year
will be $38,086.04.
2. Description of a Preliminary Model of an Update Framework Under the
LTCH PPS
In the August 30, 2002 final rule (67 FR 56086), which implemented
the LTCH PPS, we stated that in the future we may propose to develop a
framework to update payments to LTCHs that would account for other
appropriate factors that affect the efficient delivery of services and
care provided to Medicare patients. A conceptual basis for the proposal
of developing an update framework in the future was presented in
Appendix B of that same final rule (67 FR 56086). In subsequent final
rules that updated the LTCH PPS standard Federal rate for years after
FY 2003, we explained that we did not propose an update framework
because we had not yet collected sufficient data to allow for the
analysis and development of a framework under the LTCH PPS (see 68 FR
34134, 69 FR 25682, and 70 FR 24179). Since the LTCH PPS was
implemented just slightly over 3 years ago (for cost reporting periods
beginning on or after October 1, 2002) and due to the time lag in the
availability of Medicare data, we continue to believe that we still do
not yet have sufficient data to develop an update framework upon which
to base the update to the standard Federal rate for the 2007 LTCH PPS
rate year.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4667),
although we do not have enough complete data at this time to update for
RY 2007 based on an update framework, we believe that the almost 2 full
years of data generated under the LTCH PPS is sufficient data to begin
the discussion of the development of a potential update framework that
we may propose to use in the future under the LTCH PPS for the annual
update to the LTCH standard Federal rate. Therefore, although we did
not propose to employ an analytical update framework in that proposed
rule to determine the 2007 LTCH PPS rate year update to the standard
Federal rate,

[[Page 27819]]

we presented a preliminary model of an update framework, using the best
available data and concepts, in Appendix A of that proposed rule, which
we may propose to adopt at some time in the future under the LTCH PPS.
Furthermore, in the RY 2007 LTCH PPS proposed rule, we solicited
comments on that preliminary update framework methodology and its
application, which we may propose to adopt at some time in the future
under the LTCH PPS. Also, we stated that we would appreciate comments
regarding recommendations to improve it.
We received a few comments on the preliminary model of an update
framework that was presented in Appendix A of the RY 2007 LTCH PPS
proposed rule (71 FR 4742 through 4747). In this final rule, we are
again presenting a preliminary model of an update framework, using the
best available data and concepts, which we may propose to adopt at some
time in the future under the LTCH PPS, in Appendix A of this final
rule. We have responded to the comments that we received on the
preliminary update framework model presented in the RY 2007 LTCH PPS
proposed rule in Appendix A of this final rule. We continue to solicit
comments on this preliminary update framework methodology and its
application, which we may propose to adopt at some time in the future
under the LTCH PPS. Also, we would appreciate comments regarding
recommendations to improve it. We note that this preliminary model of
an update framework for the LTCH PPS is based on the conceptual
discussion of a LTCH PPS update framework that was presented in the
August 30, 2002 final rule (67 FR 56086), and is similar to the update
framework formerly used to develop the operating IPPS annual update
recommendation (69 FR 28816 through 28817) and that which is currently
used under the capital IPPS for inpatient short-term acute-care
hospitals set forth at Sec. 412.308(c)(1)(ii).
3. Update to the Standard Federal Rate for the 2007 LTCH PPS Rate Year
Currently, under Sec. 412.523, the annual update to the LTCH PPS
standard Federal rate is equal to the most recent estimate of increases
in the prices of an appropriate market basket of goods and services
included in covered inpatient LTCH services (that is, presently, the
excluded hospital with capital market basket). As we indicated in
previous LTCH PPS final rules (67 FR 56014, 68 FR 34157, 69 FR 25712,
and 70 FR 24209 through 24213) and in the RY 2007 LTCH PPS proposed
rule (71 FR 4667), we have developed a monitoring system to assist us
in evaluating the LTCH PPS. We have used the results of these
monitoring efforts, along with the most recently available LTCH PPS
data to assess current payment adequacy under the LTCH PPS.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4667
through 4670), because we believe that current payments are more than
adequate to account for price increases in the services furnished by
LTCHs during the 2007 LTCH PPS rate year, under the broad authority
conferred upon the Secretary by section 123 of the BBRA as amended by
section 307(b) of the BIPA to include appropriate adjustments,
including updates, in the establishment of the LTCH PPS, we proposed to
revise Sec. 412.523(c)(3)(ii), to specify that, for discharges
occurring on or after July 1, 2006 and on or before June 30, 2007, the
standard Federal rate from the previous year would be updated by a
factor of zero percent. That is, the standard Federal rate for RY 2007
rate year would remain the same as the standard Federal rate in effect
during the 2006 rate year ($38,086.04).
In this final rule, as we discuss in greater detail below, because
we continue to believe that current payments are more than adequate to
account for price increases in the services furnished by LTCHs during
the 2007 LTCH PPS rate year, under the broad authority conferred upon
the Secretary by section 123 of the BBRA as amended by section 307(b)
of the BIPA to include appropriate adjustments, including updates, in
the establishment of the LTCH PPS, we are revising Sec.
412.523(c)(3)(ii), to specify that, for discharges occurring on or
after July 1, 2006 and on or before June 30, 2007, there will be a zero
percent update to the standard Federal rate from the previous year.
That is, the standard Federal rate for the July 1, 2006 through June
30, 2007 rate year will be $38,086.04.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4667),
and in the August 30, 2002 final rule (67 FR 56014), we describe an on-
going monitoring component of the new LTCH PPS that would enable us to
evaluate the impact of the new payment policies. We stated that, if our
data indicate that changes to the system might be warranted, we may
consider proposing revisions to these policies in the future. Since the
implementation of the LTCH PPS (for cost reporting periods beginning on
or after October 1, 2002), there has been tremendous growth in the
number of LTCHs reimbursed by Medicare. Specifically, the number of
LTCHs has almost doubled over the past 3 years from approximately 200
LTCHs in FY 2003 to 378 LTCHs at the start of FY 2005. In addition,
Medicare spending for LTCHs has also grown rapidly, as noted in
MedPAC's June 2004 Report to Congress (page 122). Rapid increases in
LTCH growth and Medicare spending under the LTCH PPS, in conjunction
with the fact that over 98 percent of LTCHs are currently paid based
fully on the Federal rate (rather than choosing to be paid under a
blend of the reasonable cost-based (TEFRA) payment amount and the LTCH
PPS Federal rate payment amount), prompted us to examine changes in
LTCHs' patient case-mix index (CMI) and margins under the LTCH PPS. As
discussed in greater detail in the RY 2007 LTCH PPS proposed rule (71
FR 4667 through 4670), we believe the proposed zero percent update
factor for RY 2007, which was based on the most recent estimate of the
proposed RPL market basket at that time, adjusted to account for coding
improvements, is supported by our findings regarding CMI, Medicare
margins, and patient census based on the most recent complete LTCH
data.
A LTCH's CMI is defined as its case weighted average LTC-DRG
relative weight for all its discharges in a given period. Changes in
CMI consist of two components: ``Real'' CMI changes and ``apparent''
CMI changes. Real CMI increase is defined as the increase in the
average LTC-DRG relative weights resulting from the hospital's
treatment of more resource intensive patients. Apparent CMI increase is
defined as the increase in CMI due to changes in coding practices.
Observed CMI increase is defined as real CMI increase plus the increase
in computed CMI due to changes in coding practices (including better
documentation of the medical record by physicians and more complete
coding of the medical record by coders). If LTCH patients have more
costly impairments, lower functional status, or increased
comorbidities, and thus require more resources in the LTCH, we will
consider this a real change in case-mix. Conversely, if LTCH patients
have the same impairments, functional status, and comorbidities but are
coded differently resulting in higher payment, we consider this an
apparent change in case-mix. We believe that changes in payment rates
should accurately reflect changes in LTCHs' true cost of treating
patients (real CMI increase), and should not be influenced by changes
in coding practices (apparent CMI increase). Apparent CMI increase
results in a case

[[Page 27820]]

being grouped to a LTC-DRG with a higher weight than it will be without
such changes in coding practices, which results in a higher LTCH PPS
payment that does necessarily reflect the true cost of treating the
patient. Therefore, in the RY 2007 LTCH PPS proposed rule (71 FR 4668),
under the broad discretionary authority conferred upon the Secretary by
section 123 of the BBRA as amended by section 307(b) of the BIPA to
include appropriate adjustments, including updates, in the
establishment of the LTCH PPS, we proposed to revise the annual update
to the LTCH PPS standard Federal rate set forth at Sec. 412.523(a)(2)
for the 2007 LTCH PPS rate year to adjust the payment amount for LTCH
inpatient hospital services to eliminate the effect of coding or
classification changes that do not reflect real changes in LTCHs' case-
mix. We explained that it is important to eliminate the effect of
coding or classification changes because they do not reflect the true
cost of treating patients.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4668),
we asked 3M Health Information Systems (3M) to examine changes in case-
mix and coding since the implementation of the LTCH PPS based on the
most recently available data. As part of their analysis, 3M compared FY
2003 LTCH claims data from the first year of implementation of the PPS
with the FY 2001 claims data (generated prior to the implementation of
the LTCH PPS), which is the same LTCH claims data used to develop the
LTCH PPS. The analysis performed by 3M indicated, among other things,
that the average annual CMI increase from FY 2001 to FY 2003 was 2.75
percent. Since coding of diagnoses was not a factor in determining
payments under the former reasonable cost-based (TEFRA) payment system,
and since payments were not directly tied to diagnosis codes, there was
no incentive for LTCHs to attempt to influence payments through changes
in coding practices. Therefore, it is reasonable to assume that the
observed 2.75 percent change in case-mix in the years prior to the
implementation of the LTCH PPS represent the value for the real CMI
increase (that is, we assume that the increase in case-mix is due to
treatment of more resource intensive patients rather than to
improvements in documentation or more complete coding of the medical
record during this period). Using the average annual 2.75 percent
observed CMI increase as a baseline, we separated the CMI increase
between FY 2003 and FY 2004 into the real CMI increase, which is based
on the treatment of more resource intensive patients, and the apparent
CMI increase, which is due to improvements in documentation and coding
practices.
As we also stated in the RY 2007 LTCH PPS proposed rule (71 FR
4668), the calculated observed CMI increase between FY 2003 and FY 2004
was 6.75 percent. Assuming that the real CMI increase observed (on
average) from FY 2001 to FY 2003 remained relatively constant into FY
2005, then the difference of 4.0 percent (6.75 percent minus 2.75
percent) represents the apparent CMI increase due to improvements in
documentation and coding. This is considerably higher than the 0.34
percent behavioral offset originally estimated by CMS actuaries, which
was used in the development of the FY 2003 LTCH PPS standard Federal
rate (67 FR 56033). Therefore, we stated our belief that a significant
portion of the 6.75 percent increase in CMI between FY 2003 and FY 2004
is due to changes in coding practices rather than the treatment of more
resource intensive patients.
In addition, in the RY 2007 LTCH PPS proposed rule (71 FR 4669), we
discussed an internal CMS analysis, which shows high Medicare margins
among LTCHs since the implementation of the LTCH PPS in FY 2003. We
calculated ``revenue-weighted'' Medicare margins, which are the sum of
LTCH inpatient Medicare revenue (payments) minus the sum of LTCH
inpatient Medicare expenses (costs) divided by the sum of LTCH
inpatient Medicare revenue (payments). This margin calculation, also
utilized by MedPAC in its analyses, is used to evaluate the overall
financial status of LTCHs. Specifically, our analysis found that LTCH
Medicare margins for FY 2003 (the first year of the LTCH PPS) were 7.8
percent and preliminary cost report data for FY 2004 reveal an even
higher Medicare margin of 12.7 percent.
We also noted that MedPAC is presently engaged in an evaluation of
payment adequacy for LTCHs, which upon completion, will be published in
the Commission's 2006 Reports to the Congress. In the RY 2007 LTCH PPS
proposed rule (71 FR 4668), we discussed the Commission's preliminary
findings that were presented at the October 7, 2005 public meeting. In
MedPAC's March 2006 Report to Congress on Medicare Payment Policy, the
Commission recommended that the update to the LTCH PPS Federal rate be
eliminated for RY 2007 (Section 4C; page 219). We also discussed the
review by a Medicare program safeguard contractor and other
investigations of LTCHs treating patients that do not require hospital-
level care.
Additionally, in the RY 2007 LTCH PPS proposed rule (71 FR 4670),
we noted that the proposed zero percent update for the 2007 LTCH PPS
rate year may make the one-time prospective adjustment to the LTCH PPS
Federal rate, provided for under Sec. 412.523(d)(3), unnecessary if
our comprehensive analysis of the LTCH PPS determines that LTCH PPS
payments and the costs for LTCH services become aligned as a result of
this change. We solicited comments on whether the proposed zero percent
for the 2007 LTCH PPS rate year is appropriate or if an alternative
percentage reduction should be applied to the standard Federal rate for
the 2007 LTCH PPS rate year. Specifically, as explained in greater
detail below, to the extent of our review of FY 2003 LTCH data (which
will include but, is not limited to changes in case-mix) show that, if
by coincidence after updating the Federal rate by zero percent for RY
2007, the standard Federal rate is appropriate, it is possible that any
further adjustment to the Federal rate may be unnecessary.
Comment: A few commenters stated that CMS, in proposing a zero
percent update to the Federal rate for RY 2007, failed to consider the
recent revisions to the guidelines for utilizing DRG 475 (``Respiratory
System Diagnosis with Ventilator Support'') that have resulted in
reduced payments to LTCHs, despite that the same resources are being
expended.
Response: As discussed in section III. of the preamble of this
final rule, the LTC-DRG assignments are based on GROUPER logic. The
GROUPER is a software product that analyzes coding information
submitted by hospitals, and subsequently makes a DRG assignment. CMS is
responsible for GROUPER maintenance, including the assignment of DRGs.
The DRG information is used to make payment to hospitals on behalf of
Medicare beneficiaries treated by these hospitals. In contrast, the
role of the AHA is to publish, in their document Coding Clinic for ICD-
9-CM, coding guidelines and advice as designated by the four
cooperating parties. The cooperating parties that have final approval
of the published coding advice are the AHA, the American Health
Information Management Association (AHIMA), CMS, and the National
Centers for Health Statistics.
While the commenters have noted ``revisions to the guidelines for
utilizing DRG 475'', it is not clear what guidelines are being cited.
To address this comment in a responsible manner,

[[Page 27821]]

we would need more information than has been provided by the
commenters. Furthermore, as discussed below in this preamble, the zero
percent update finalized in this final rule is an adjustment that we
have made to account for the case mix ``creep'' that was observed
during FY 2004. Accordingly, any subsequent ``revisions to guidelines''
would have no impact on our need to make this adjustment in determining
the RY 2007 Federal rate.
Comment: As an alternative to the proposed zero percent update, one
commenter encouraged CMS to work with the AHA in developing more
stringent coding practices as currently considered by the ``Coding
Clinic'' if it believes additional coding practices are needed.
Response: In section III.E.3. of this final rule, we emphasize the
need for proper coding by LTCHs. We also explain that inappropriate
coding of cases can adversely affect the uniformity of cases in each
LTC'DRG and produce inappropriate weighting factors at recalibration.
We continue to urge LTCHs to focus on improved coding practices.
Because of concerns raised by LTCHs concerning correct coding, we have
asked the AHA to provide additional clarification or instruction on
proper coding in the LTCH setting. As we noted earlier, the coding
guidelines currently published by the AHA are the result of the joint
collaboration of CMS, AHA, AHIMA, and the National Centers for Health
Statistics.
Comment: Many commenters expressed concern that the proposed
changes to the SSO policy in conjunction with the proposed zero percent
update would reduce hospital payments by nearly 15 percent, forcing
LTCHs to operate at a loss when treating Medicare patients. They urged
CMS to provide the full market basket update to the Federal rate for RY
2007.
Response: We disagree that the proposed zero percent update to the
Federal rate would have resulted in ``reduced'' hospital payments. In
the RY 2007 LTCH PPS proposed rule, we proposed to offset the market
basket by an amount equal to the increase in case mix that was due
solely to improved documentation and coding rather than changes in real
case mix. At the time of the proposed rule, that increase was within
rounding error of the market basket, and therefore resulted in a
proposed Federal rate for RY 2007 that was equal to the RY 2006 Federal
rate, and not a reduction to the RY 2006 Federal rate. We have provided
throughout this section of this final rule, as we did in the proposed
rule, our rationale for including an adjustment to account for changes
in coding practices in the determination of the RY 2007 Federal rate.
As discussed in the RY 2007 LTCH PPS proposed rule, and as discussed in
greater detail below, we analyzed changes in the LTCHs' CMI in
conjunction with a detailed analysis of LTCH margins since the
implementation of the LTCH PPS, and our zero percent update policy is
also based on these analyses.
In response to the commenters concern that the proposed changes to
the SSO policy could also force LTCHs to operate at a loss, in section
VI.A.1. of the preamble of this final rule below, we discuss the
changes to the SSO policy that we are establishing in this final rule,
and in section XV. of this final rule we discuss the projected impact
of those changes (as well as the other changes established in this
final rule) on estimated aggregate LTCH PPS payments for RY 2007.
Specifically, in our discussion of the estimated decrease in aggregate
LTCH PPS payments for RY 2007, we explain that we do not believe that
this change will result in an adverse impact on LTCHs because, as a
result of the change to the SSO payment formula, we believe that LTCHs
will significantly reduce the number of short-stay cases that they
admit. We believe that by paying appropriately for these SSO cases by
removing the financial incentive for LTCHs to admit those very short
stay cases that could otherwise receive appropriate treatment at an
acute-care hospital (and paid under the IPPS), LTCHs will change their
admission patterns for these patients. The estimated decrease in LTCH
PPS payments for RY 2007 was determined based on the current LTCH
admission pattern of SSO cases (that is, currently about 37 percent of
all LTCH cases), and we believe that the estimated decrease in LTCH
payments per discharge for RY 2007 discussed in section XV. of this
final rule will only occur if LTCHs were to continue to admit the same
number of SSO patients with very short lengths of stay. Furthermore, as
also discussed in section XV. of this final rule, we do not believe
that this change will force LTCHs to operate at a loss because, based
on our recent margins analysis (discussed in greater detail below in
this section). LTCH margins for FY 2003 are in excess of 7 percent, and
preliminary FY 2004 data shows margins in excess of 12 percent.
Therefore, we believe that even with an estimated decrease in LTCHs'
payments per discharge for the 2007 LTCH PPS rate year, LTCH PPS
payments will be sufficient to compensate LTCHs for the costs of the
efficient delivery of LTCH services to LTCH patients.
Comment: Several commenters believed that CMS should allow a full
market basket update to the LTCH PPS Federal rate for RY 2007. Other
commenters stated that the LTCH PPS Federal rate should be updated
annually by the most recent estimate of the market basket.
Response: As we have discussed throughout this section of the
preamble of this final rule, while we continue to believe that an
update to the 2007 LTCH PPS rate year should be based on the most
recent estimate of the LTCH PPS market basket, we believe it
appropriate that the market basket be offset by an adjustment to
account for changes in coding practices. Such an adjustment will
protect the integrity of the Medicare Trust Funds by ensuring that the
LTCH PPS payment rates better reflect the true costs of treating LTCH
patients. We wish to emphasize that the RY 2007 Federal rate update of
zero percent established in this final rule (as discussed in greater
detail below) is based on the estimate of the LTCH PPS market basket
for RY 2007. As we discussed in the RY 2007 LTCH PPS proposed rule and
as we have discussed in greater detail above in this section, we
believe that in determining the Federal rate update for RY 2007 it is
appropriate to apply an adjustment to the most recent estimate of the
LTCH PPS market basket to eliminate the effect of coding or
classification changes that do not reflect real changes in LTCHs' case-
mix. This adjustment is necessary in order to serve to account for
payments that were made based on improved coding (rather than increased
patient severity) in prior years.
As we noted in the RY 2007 LTCH PPS proposed rule (71 FR 4670) and
as we reiterate below, the revision to Sec. 412.525(c)(3) established
in this final rule will address an update to the LTCH PPS Federal rate
for the 2007 LTCH PPS rate year. We will propose future revisions to
Sec. 412.525(c)(3) to address future proposed updates to the LTCH PPS
Federal rates in future rate years based on an analysis of the most
recent LTCH data available that would be presented in upcoming LTCH
proposed rules. Furthermore, as discussed above in section IV.C.2. of
this preamble, we are also examining the potential for developing and
implementing an update framework under the LTCH PPS. We believe an
update framework, which would incorporate the market basket as one
component, will enhance the methodology for updating payments by
addressing factors such as case-mix, intensity, and productivity,
beyond

[[Page 27822]]

changes in pure input prices (measured by the market basket). (As noted
in section V.C.2 of this final rule, a preliminary model of an update
framework that may be proposed at some later date for future use under
the LTCH PPS is presented in Appendix A of this final rule.) However,
at this time, we are not proposing a specific annual update framework.
As noted above, we will wait until we have collected sufficient and
complete LTCH PPS data to evaluate payments and costs under the LTCH
PPS before proposing to establish such a framework for determining the
annual update to the LTCH PPS Federal rate in the future.
Comment: Many commenters stated that 3M's analysis of LTCH claims
data was flawed. They stated that because a number of LTCHs did not
transition to the LTCH PPS until FY 2004, using FY 2003 as a comparison
to FY 2001 was wrong. The commenters also suggested that CMS would need
to compare the CMI increases for LTCHs that elected reimbursement at
the full Federal rate at the beginning or some time during the
transition period to CMI increases for LTCHs that chose to go through
the full 5-year transition. They emphasized that since LTCHs were
transitioning to the LTCH PPS, it is unlikely that LTCHs were
aggressively coding the stays of their Medicare patients.
Response: We appreciate the commenters' concern that errors were
made in analyzing LTCHs' CMI data; however, we disagree with the
commenters that 3M's analysis of LTCH claims data was flawed. We
believe commenters erroneously presumed that coding improvement begins
on the date the LTCH elected to be reimbursed at the full Federal rate
under the LTCH PPS and not before. Because providers paid under the
transition blend have at least a portion of their payments based on the
Federal rate, which is based on ICD-9-CM diagnosis and the accurate
coding of procedure codes, we believe LTCHs still had an incentive to
improve coding while they were transitioning to the full Federal rate.
In addition, the commenters provide no evidence that the large increase
from the 2.75 percent average annual increase in CMI in the years prior
to the implementation of the LTCH PPS to the 6.75 percent increase in
LTCH CMI found between FY 2003 and FY 2004 resulted from a sudden
increase in patient acuity in one year, especially when analyzed in the
context of the relatively small increase in costs observed during this
same period.
Comment: A few commenters asserted that the average intensity of
Medicare inpatients has increased significantly from pre-PPS levels.
Therefore, they believe the assumption that ``real'' case-mix is 2.75
percent is faulty.
Response: As explained in the RY 2007 LTCH PPS proposed rule (71 FR
4668), we made the assumption that real case-mix was 2.75 percent based
on the average annual CMI increase in the three years prior to the full
implementation of the LTCH PPS (that is, between FY 2001 and FY 2003).
As we acknowledged in that same proposed rule, while it may be true
that the average intensity has increased from pre-PPS levels, it is not
supported by our analysis of the change in LTCHs' costs. As we stated
in the RY 2007 LTCH PPS proposed rule, we did not observe a large
increase in cost per discharge between FY 2003 and FY 2004, which we
would have expected if the observed CMI increase was due to real CMI
change (treating sicker patients). We would have expected to see a
large increase in costs per discharge to pay for the resources needed
to treat sicker patients if the CMI increase was due to ``real'' CMI
change.
We do not believe the assumption that the increase in ``real''
case-mix is 2.75 percent is faulty. A LTCH's CMI is defined as its case
weighted average LTC-DRG relative weight for all its discharges in a
given period. Changes in CMI consist of two components: ``Real'' CMI
changes and ``apparent'' CMI changes. As stated in the RY 2007 LTCH PPS
proposed rule, the 4.0 percent apparent CMI increase is a conservative
estimate when compared to the 5.35 percent apparent CMI increase that
would result if we had applied the information from past studies on
case-mix change to the analysis of the LTCHs CMI increase. Based on
past studies of IPPS case-mix change by the RAND Corporation, (``Has
DRG Creep Crept Up? Decomposing the Case-Mix Index Change Between 1987
and 1988'' by G. M. Carter, J.P. Newhouse, and D. A. Relles, R-4098-
HCFA/ProPAC (1991)), in updating IPPS rates we have consistently
assumed that real case-mix change for IPPS hospitals was a fairly
steady 1.0 to 1.4 percent per year. If we had applied this same
assumption to LTCHs, we would have concluded that nearly 5.35 percent
(6.75 percent minus 1.4 percent) of the change in case-mix during the
first year of the LTCH PPS is apparent CMI and not real CMI.
Consequently, if we had applied this more conservative estimate of real
case-mix increase, the proposed update to the Federal rate for RY 2007
would have been a reduction to the current Federal rate rather than
leaving the Federal rate unchanged.
Comment: Several commenters stated that CMS was unfairly penalizing
LTCHs twice for ``case mix creep'' (that is, the ``apparent'' CMI
increase between FYs 2003 and 2004). They stated that CMS had already
corrected any coding issues from FY 2004 by reweighting the LTC-DRGs
for FY 2006 based on that data, which resulted in an estimated 4.2
percent reduction in payments to LTCHs.
Response: Under the LTCH PPS, we determine LTC-DRG relative weights
as discussed in section III. of this preamble, to account for the
difference in resource use by patients exhibiting the case complexity
and multiple medical problems characteristic of LTCH patients. As we
discussed in the FY 2006 IPPS final rule (70 FR 47701 through 47702),
we recalibrated FY 2006 LTC-DRG relative weights based on an analysis
of LTCH claims data from the FY 2004 MedPAR file. Thus, FY 2004 LTCH
claims data, which reflected improved coding, were used to determine
the LTC-DRG relative weights used to pay LTCH PPS discharges occurring
during FY 2006.
While it is true that the reweighting of the LTC-DRGs using FY 2004
LTCH claims served to update the relative weights based on actual
claims data in each LTC-DRG, which also reflects coding improvements
that occurred in FY 2004, the recalibration of LTC-DRG weights only
corrects for any coding improvement for the purpose of making accurate
LTCH PPS payments in FY 2006. However, annual recalibration does not
serve to account for payments that were made based on improved coding
(rather than patient severity) in prior years. The case mix adjustment
to the market basket in determining the RY 2007 Federal rate is meant
to reduce current payments to account for the increase payments that
occurred in FY 2004 that resulted from the CMI increase that is
attributable to ``case-mix'' creep in that year. Therefore, we disagree
that providers are being penalized twice for the LTCH coding
improvements that occurred in FY 2004 (that is, ``case-mix creep'').
Comment: Several commenters contend that our margins analysis is
flawed. The commenters state that although we reported that preliminary
data showed LTCH margins of 12.7 percent for FY 2004, an examination of
MedPAC LTCH margin data shows that almost a quarter of LTCHs (23
percent) had negative Medicare margins in 2004. One of the commenters
also stated that MedPAC did not take into consideration the effect of
the ``25 percent rule'' on reimbursement to LTCH hospitals-within-
hospitals (HWHs) for admissions from the host hospital when modeling
LTCH Medicare margins. The

[[Page 27823]]

commenter also believes that in stating that the reported increases in
costs were not found to be commensurate with the reported increases in
CMI (and Medicare payments), CMS did not allow for any increase in
efficiency by LTCHs. However, in the update framework section (Appendix
A of the RY 2007 LTCH PPS proposed rule), the commenter points out that
CMS suggests that it may begin measuring efficiency, and may also
account for such a factor in a possible proposed future update
framework methodology. The commenter believes CMS is inconsistent with
regards to efficiency.
Response: As we explained in the RY 2007 LTCH PPS proposed rule,
the margins analysis was revenue-weighted (that is, calculated by
adding the total Medicare payments and expenses for all LTCHs). CMS and
MedPAC use this type of margin calculation to assess whether Medicare
payment rates to LTCHs (as a provider class) are adequate. The
commenter states that nearly one-quarter of LTCHs had negative margins
in FY 2004, we note that based on the preliminary data for FY 2004,
one-quarter of LTCHs had margins greater than 18 percent. Therefore, it
is reasonable and expected that we estimate aggregate positive LTCH
margins in excess of 12 percent for FY 2004, as stated below in this
section.
Based on data from the LTCHs' cost reports received as of December
31, 2005, updated LTCH margins analysis for this final rule continues
to show high Medicare margins among LTCHs since the implementation of
the LTCH PPS in FY 2003. As we did for the RY 2007 LTCH PPS proposed
rule, we calculated ``revenue-weighted'' Medicare margins, which are
the sum of hospital inpatient Medicare revenue (payments) minus the sum
of hospital inpatient Medicare expenses (costs) divided by the sum of
hospital inpatient Medicare revenue (payments). This margin
calculation, also utilized by MedPAC in its analyses, is used to
evaluate the overall financial status of LTCHs in general. In an
analysis of the latest available LTCH cost reports, we found that LTCH
Medicare margins for FY 2003 (the first year of the LTCH PPS) were 7.8
percent and preliminary cost report data for FY 2004 based on the most
recent update to the cost report data in HCRIS reveal an even higher
Medicare margin of 12.7 percent. For periods prior to the
implementation of the LTCH PPS (that is, FY 1999 through FY 2002), we
found that aggregate Medicare margins ranged between a minimum of -2.3
percent in FY 2000, and a maximum of 1.5 percent in FY 2002. MedPAC
also noted that LTCH HwHs were found to have higher margins than
freestanding LTCHs in RY 2004.
As mentioned by the commenter, when discussing MedPAC's modeling of
the 2006 LTCH PPS margins, MedPAC's 2006 LTCH PPS margins analysis did
not include the effect of the HwH ``25 percent rule,'' which is the
special payment provisions for LTCH HwHs and satellites that we
established at Sec. 412.534 in the FY 2005 IPPS final rule. Under this
policy we provide a payment adjustment for those patients discharged
from co-located LTCHs (that is, HwHs and satellites) admitted from host
hospitals that exceeded a specified percentage (in most cases, 25
percent). Medicare patients who reach HCO status in the host hospital
are excluded from the count of the percentage of patients admitted
directly from the host. We additionally provided a 4-year transition to
this policy for existing LTCH HwHs and satellites and those LTCH HwHs
paid under the LTCH PPS on October 1, 2005 and whose qualifying period
began on or before October 1, 2004; however, all other LTCHs are
immediately governed by the percentage thresholds established under
Sec. 412.534.
In the transcript of MedPAC's December 8, 2005 public meeting (p.
164), the MedPAC analyst noted that despite the desire to model the
effect of the HwH ``25 percent rule'' established at Sec. 412.534 when
modeling 2006 LTCH margins, they were unable to do so at that time
since the first year of the 5-year phase-in (FY 2005) was ``hold-
harmless'' and any fiscal impact (that is, percentage threshold
requirements specified at Sec. 412.534) are effective for cost
reporting periods beginning during the current fiscal year (FY 2006).
As we discussed in the FY 2005 IPPS final rule when we implemented the
``25 percent rule'' at Sec. 412.534 (69 FR 49771), we were unable to
estimate the impact of this policy because we anticipated behavioral
changes by both the host and the co-located LTCHs resulting from the
provision that exempts HCOs from the percentage threshold calculation.
We are unable to estimate the impact on new LTCHs that will be
immediately subject to the full threshold requirements established
following the implementation of those regulations.
As MedPAC noted at their public meeting, FY 2006 is the first year
of the 4-year phase-in of the threshold requirements established under
Sec. 412.534, and due to the lag time in the availability of data, we
currently do not have sufficient FY 2006 data to determine the effect
of the implementation of those requirements on LTCHs' behavior.
Therefore, we are still unable to estimate the impact of this policy.
However, since the policy at Sec. 412.534 exempts IPPS HCOs at the
acute-care host hospital from the LTCHs' percentage threshold
calculation (as noted above), and since, as noted earlier, the margins
for HwHs are higher than those of freestanding LTCHs, we believe that
even with some adjustments resulting in a decrease in some co-located
LTCHs' RY 2007 LTCH PPS payments due to the threshold requirements
under Sec. 412.534, Medicare payments to co-located LTCHs will exceed
the Medicare costs of the inpatient hospital services provided to its
patients even with a zero percent update to the Federal rate for RY
2007.
As discussed in the RY 2007 LTCH PPS proposed rule, the large
observed increase in LTCH case-mix was not accompanied by a
corresponding increase in Medicare costs. This is consistent with our
belief expressed earlier that a significant part of this observed
increase in case-mix is ``apparent'' and not ``real.'' In conjunction
with an increase in real case-mix we would have expected to see a
significant increase in costs per discharge, even taking into account
LTCH operating efficiencies, to pay for the resources needed to treat
sicker patients. Consistent with MedPAC's most recent research
discussed in its March 2006 Report to Congress (section 4C), our
margins analysis indicates that, in spite of the estimated real
increase in case-mix (severity of patients), payments to LTCHs under
the LTCH PPS are generally more than adequate to cover the Medicare
costs of the inpatient hospital services provided to LTCH patients.
As we also discussed in the RY 2007 LTCH PPS proposed rule,
although supported by our LTCHs' margins analysis, the zero percent
update to the Federal rate for RY 2007 is primarily based on our
analysis of case-mix. This analysis indicates that a significant
portion of the observed increase in case-mix from FY 2003 to FY 2004 is
due to changes in coding practices rather than an increase in the
severity of LTCHs' patients. Specifically, based on the latest
available LTCH cost report data, our analysis supports our adjustment
to account for changes in coding practices. Specifically, the most
recent available LTCH cost report data shows that, while payments
(revenue) per discharge increased in excess of the market basket
estimate for the period, costs (expenses) per discharge either
increased at a significantly lower rate or decreased

[[Page 27824]]

slightly for the same period (as discussed in greater detail below).
As noted by the commenter, the conceptual discussion of a
preliminary model of an update framework under the LTCH PPS presented
in the RY 2007 LTCH PPS proposed rule (71 FR 4742 through 4747),
accounts for efficiency as a component of the adjustments for
productivity and intensity. However, we have not assumed that the
reason costs have not increased commensurate with case-mix (and
payments) is due to increased efficiency by LTCHs. As stated
previously, the update framework was presented at this point as under
development and was not used to determine the proposed update to the
standard Federal rate for RY 2007. Furthermore, even the conceptual
model of the illustrative LTCH PPS update framework for RY 2007
presented in Appendix A for discussion purposes we had recommended a -
0.9 percent adjustment for productivity (an efficiency measure) based
on the productivity target used by MedPAC. This factor is based on BLS'
estimate of the 10-year moving national average rate of productivity
growth (71 FR 4746). This productivity adjustment in the illustrative
update framework assumes that an efficient LTCH can produce more output
(that is, inpatient hospital services) with the same inputs (that is,
labor and capital) such that the full increase in input costs does not
have to be passed on by the provider (71 FR 4744). Therefore, the
recommended efficiency measure of -0.9 percent adjustment included in
the illustrative update framework reduces the adjustment for input
prices (that is, market basket estimate) based on the expectation that
an efficient LTCH can produce the same output with slightly less than 1
percent less of the same inputs. In absence of accounting for a factor
that accounts for efficiency, we would expect that costs per discharge
would increase at about the same rate as the estimate of market basket,
which has previously been used to update the LTCH PPS Federal rate
annually, plus any increase that is based on an increase in patient
severity (that is, real case-mix). However, our analysis of LTCHs
payments and costs per discharge based on the latest available cost
report data supports our adjustment to account for changes in coding
practices because it shows that while payments (revenue) per discharge
increased approximately 15 percent from FY 2002 to FY 2003 (the first
year of the LTCH PPS), costs (expenses) per discharge increased by only
about 8 percent for the same period. Thus payments to LTCHs from FY
2002 to FY 2003 increased almost twice as much as the increase of costs
during the same period. Furthermore, based on the most recent available
LTCH cost report data for FY 2004, we found that while payments
(revenue) per discharge increased by approximately 5 percent from FY
2003 to FY 2004, costs (expenses) per discharge actually decreased
slightly (about 0.7 percent) for the same period.
As discussed in the RY 2007 LTCH PPS proposed rule, the
illustrative update framework shown in Appendix A is only a preliminary
model, and we solicited comments regarding improvements or refinements
to it that we will consider if we propose to adopt an update framework
in the future under the LTCH PPS. By nature, a PPS is a system based on
averages, and therefore we expect that LTCHs, like any provider type
that is under a PPS system, already have and will continue to become
more efficient with the implementation of the LTCH PPS. While
increasing efficiency in the services delivered in the treatment of
Medicare beneficiaries could result in some reduction in LTCHs'
Medicare costs by providing the same output (that is, inpatient
hospital services) with a minimum of waste, expense and effort, it is
unlikely that the significant difference between the increase in case-
mix (and payments per discharge) and change in costs per case
(discussed above in this section) is solely the result of increased
efficiency of LTCHs. As noted above, our illustrative update framework
only included a -0.9 percent adjustment for productivity, while our
margins analysis shows a substantially larger difference between the
change between payments per discharge and costs per discharge since the
implementation of the LTCH PPS, which we believe are due to factors
(that is, changes in coding practices) other than increased
efficiencies by LTCHs. As we stated in the proposed rule and as noted
above, we did not observe a significant increase in cost per discharge.
In fact, for FY 2004, the latest cost report data shows a decrease in
costs per discharge, which we would have expected to see if the
observed CMI increase was due to ``real'' CMI change (treating sicker
patients). In addition, as stated in the RY 2007 LTCH PPS proposed rule
and as discussed in greater detail in this section of this final rule,
a review by a Medicare program safeguard contractor and other anecdotal
findings of LTCHs treating patients that do not require hospital-level
care further supports the data analysis which show that the increase in
LTCHs' CMI is primarily due to factors other than real CMI.
Therefore, we disagree with the commenter that we failed to account
for efficiency in determining the update to the Federal rate for RY
2007. We believe that while there may be some reduction in LTCH costs
per discharge as a result of efficiency, the difference between LTCHs'
cost per discharge and payments per discharge is so profound that it
cannot be reasonably assumed that efficiency is the sole basis for that
difference. Rather, we believe it is the changes in coding practices,
discussed previously, that have led to the substantial difference
between LTCHs' cost per discharge and payments per discharge, which has
had a significant impact on LTCHs' margins.
Comment: One commenter noted that while the proposed zero percent
update appears in MedPAC's recommendations, the Congress has not agreed
to take action on MedPAC's recommendation to eliminate an update to the
RY 2007 payment rate.
Response: The proposal to provide a zero percent update to the LTCH
PPS Federal rate for RY 2007 was consistent with MedPAC's
recommendation. Although it is correct that the Congress has not taken
specific action to legislate MedPAC's recommendation as stated in the
RY 2007 LTCH PPS proposed rule, the Secretary has been given the broad
discretionary authority, under section 123 of the BBRA as amended by
section 307(b) of the BIPA, to include appropriate adjustments,
including updates, in the establishment of the LTCH PPS. We continue to
believe that our proposal to establish a zero percent update to the
Federal rate to account for ``apparent'' case-mix is appropriate for
the reasons discussed in the RY 2007 LTCH PPS proposed rule that were
also stated above and is within the broad discretionary authority
conferred upon the Secretary in section 123 of the BBRA as amended by
section 307(b) of the BIPA. In addition, as discussed above, our
margins analysis indicates that current payments are more than adequate
to account for price increases in the services furnished by LTCHs
during the 2007 LTCH PPS rate year.
Comment: One commenter urged CMS to enact the proposed zero percent
update for RY 2007 only if no modifications are made to the SSO payment
formulas. The commenter stated that this would be consistent with
MedPAC's recommendations based on no change in LTCH payment policies.
Response: As the fiduciary of the Medicare Trust Fund, we are
responsible for reexamining our payment systems and revising those

[[Page 27825]]

payment systems, if necessary, to ensure that appropriate payments are
made for the efficient delivery of care to Medicare patients. This
requires that we periodically reexamine the policy components of our
payment systems and propose changes accordingly. As we discussed in
greater detail in the RY 2007 LTCH PPS proposed rule (71 FR 4667
through 4670), we believe our findings regarding LTCHs' CMI increase,
Medicare margins, and patient census supported our proposal of a zero
percent update for RY 2007. As discussed in that same proposed rule, we
believe that an adjustment to the most recent estimate of the LTCH PPS
market basket to account for the effects of changes in coding practices
is important to eliminate the effect of coding or classification
changes because, as discussed in greater detail in this section, they
do not reflect the true cost of treating patients.
Also in the RY 2007 LTCH PPS proposed rule, we proposed changes to
the SSO policy based on our review of that policy along with many other
LTCH PPS policies and LTCH behavior. As we discussed in that same
proposed rule (71 FR 4685 through 4690), the proposed revision to the
SSO policy would, among other things, reduce the unintended financial
incentive for LTCHs to admit short-stay patients that may exist under
the current SSO policy, and therefore, based on the most recent
complete data available, we believe revisions to the current SSO
policies are necessary and in no way should they be tied to the change
made regarding the update for RY 2007. (In section VI.A.1. of the
preamble below, we discuss the changes to the SSO policy that we are
establishing in this final rule.)
Therefore, because the intended purposes of the proposed adjustment
to the SSO policy and the proposed Federal rate update for RY 2007 are
different, as explained above, we believe changes to these policies
should be evaluated independently. Although, as discussed in greater
detail below in section V.A.1. of this preamble, we are modifying the
proposed SSO policy for the RY 2007 LTCH PPS final rule. As we
discussed in this section, we continue to believe that an adjustment to
the most recent estimate of the LTCH PPS market basket to account for
the effects of changes in coding practices in determining the update to
the Federal rate for RY 2007 is also necessary and appropriate.
Comment: Many commenters noted that the Medicare Program Safeguard
Contractor Review of one LTCH is not representative data upon which to
base the proposed zero percent adjustment.
Response: As stated in the RY 2007 LTCH PPS proposed rule, the
information obtained from the Medicare Program Safeguard Contractor
Review and the other anecdotal investigations of LTCHs treating
patients that do not require hospital-level care was only one factor of
our analysis. As discussed in that same proposed rule and as reiterated
above, the primary factors upon which our proposal to determine an
update to the Federal rate for RY 2007 was our CMI analysis and our
Medicare margins analysis. We agree with the commenters that we are not
aware of any determination made to indicate that LTCHs consistently
admit non-hospital level patients.
Comment: One commenter stated that while it may be true that some
LTCHs posted significant positive margins and saw significant increases
in their case-mix, not all LTCHs had that experience. The commenter
questioned how hospitals with negative margins would survive with a
zero percent update in RY 2007. Another commenter stated that ``older''
LTCHs should be ``grandfathered'' from implementation of the proposed
zero percent update for RY 2007. The commenter states that
grandfathering ``older'' LTCHs would ensure that these hospitals are
not affected by the perceived abuses of other newer hospitals.
Response: Prior to the implementation of the LTCH PPS, LTCHs were
reimbursed under reasonable cost principles (TEFRA), which established
payments to LTCHs based on hospital-specific limits for inpatient
operating costs. However, in response to the industry's advocacy for a
PPS for LTCHs, in section 123 of the BBRA as amended by section 307(b)
of the BIPA, the Congress directed the Secretary of HHS to develop a
per-discharge PPS for payment for LTCHs. The LTCH PPS was implemented
in FY 2003.
By definition, payments under a PPS are predicated on averages.
Therefore, while it may be true that some ``older'' LTCHs may not have
experienced as large of an increase in case mix between FY 2003 and FY
2004, the same could be true of some LTCHs in other categories. In
addition, our findings reveal that while some LTCHs endured negative
margins, one-quarter of all LTCHs posted margins greater than 18
percent. Because, in general, PPS policies are based on averages, we do
not believe it would be appropriate to exclude or ``grandfather''
hospital groups based on their Medicare participation date from
implementation of the Federal rate update for RY 2007. Therefore, the
RY 2007 Federal rate established in this final rule, as discussed
below, will be applicable to an LTCH regardless of the age of the
facility.
Comment: A few commenters questioned how CMS could justify
proposing a zero update to the Federal rate for RY 2007, while at the
same time proposing to postpone the implementation of the one-time
adjustment to account for differences between actual and estimated
payments for the first year of the LTCH PPS due to coding and other
factors until July 1, 2008. One commenter asserted that this approach
is contrary to PPS design and undermines the integrity and
predictability of the payment system. The commenter also stated that
CMS should pursue a one-time adjustment independent of a market basket
update for RY 2007. Another commenter stated that CMS should use the
zero update as the one-time adjustment and not extend the deadline.
Response: The commenters are referring to the one-time prospective
adjustment at Sec. 412.523(d)(3), which states that the Secretary may
make a one-time prospective adjustment to the LTCH PPS rates by October
1, 2006, so that the effect of any significant difference between
actual payments and estimated payments for the first year of the LTCH
PPS would not be perpetuated in the LTCH PPS rates for future years. As
discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4681 through
4684), the purpose of this one-time adjustment is to ensure that
ultimately, total payments under the LTCH PPS are ``budget neutral'' to
what total payments would have been if the LTCH PPS were not
implemented in FY 2003, by correcting for possible significant errors
in the calculation of the FY 2003 LTCH PPS standard Federal rate. The
one-time adjustment would ensure that any errors in past estimates
would not be perpetuated in the LTCH PPS rates for future years, while
the proposed adjustment to account for coding practices in the proposed
update to the Federal rate for RY 2007 is intended to adjust payments
made in FY 2004 to account for the increase in CMI due to improved
documentation and coding rather than an increase in patient severity.
Therefore, because the intended purposes of the adjustments are
different, as explained above, we disagree with the commenter that the
zero percent update to the Federal rate for RY 2007 is ``contrary to
the PPS design and undermines the integrity and predictability of the
payment system.'' Furthermore, we do not believe that the proposed zero
percent update to the Federal rate for RY 2007 should replace the
possible one-time budget neutrality

[[Page 27826]]

adjustment or vice versa since the intended purposes of the adjustments
are different (as explained above in this section). However, as we
noted in the RY 2007 LTCH PPS proposed rule and as we reiterated above,
it is possible that the proposed zero percent update for the 2007 LTCH
PPS rate year may make the one-time prospective adjustment to the LTCH
PPS Federal rate, provided for under Sec. 412.523(d)(3), unnecessary
if our comprehensive analysis of the LTCH PPS determines that LTCH PPS
payments and the costs for LTCH services have become aligned as a
result of this change. Specifically, the purpose of the one-time budget
neutrality adjustment under Sec. 412.523(d)(3) is intended to account
for possible significant errors in the various factors and assumptions
(not just case-mix increase) used in calculating the FY 2003 standard
Federal rate. To the extent our review of FY 2003 LTCH data show, if by
coincidence after updating the Federal rate by zero percent for RY
2007, that the standard Federal rate is appropriate, any further
adjustment to the Federal rate may be unnecessary. Similarly, if our
comprehensive analysis of the LTCH PPS determines that the current
Federal rate, which is based on the FY 2003 standard Federal rate, is
inappropriate (that is, either too high or too low), then an adjustment
under Sec. 412.523(d)(3) would be necessary.
As discussed in greater detail in the RY 2007 LTCH PPS proposed
rule (71 FR 4680 through 4682), we proposed to extend the deadline for
making the possible one-time adjustment until July 1, 2008 because we
do not now believe that we will have sufficient data to make the
determination by the current deadline of October 1, 2006. Specifically,
as discussed in greater detail below in section V.D.6. of this
preamble, we believe that only through a thorough analysis of the most
comprehensive and accurate data from the first year of the
implementation of the LTCH PPS for FY 2003 (including settled and fully
audited cost reports) would we be able to reliably determine whether
the one-time prospective adjustment to the standard Federal rate, which
if issued would have an impact on all future payments under the LTCH
PPS, should be proposed. Given the lag time required for typical cost
report settlement involving submission, desk review, and in some cases
an audit, which can take approximately 2 additional years to complete
(and we expect to audit a number of LTCH cost reports for the purpose
of this analysis), we do not believe that the October 1, 2006 deadline
established in Sec. 412.523(d)(3) is now reasonable or realistic. In
fact, we believe that for providers whose FY 2003 cost reporting
periods began at the end of FY 2003 (that is, September 2003) and ended
in August 2004, we would be in possession of the most reliable cost
report data indicating the actual costs of the Medicare program of the
LTCH PPS during the year in which we established the Federal payment
rate by July 2007 and any proposed correction, if finalized, could then
be implemented on July 1, 2008.
To summarize, despite the concerns expressed by the commenters, as
discussed above, we continue to believe that our CMI analysis and
Medicare margins analysis are sound. We continue to believe that an
update to the 2007 LTCH PPS rate year based on the LTCH PPS market
basket, offset by an adjustment to account for changes in coding
practices, is appropriate to protect the integrity of the Medicare
Trust Fund by ensuring that the LTCH PPS payment rates better reflect
the true costs of treating LTCH patients.
Therefore, in this final rule, under the broad discretionary
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA to include appropriate
adjustments, including updates, in the establishment of the LTCH PPS,
as proposed, we are revising the annual update to the LTCH PPS standard
Federal rate set forth at Sec. 412.523(a)(2) for the 2007 LTCH PPS
rate year to adjust the payment amount for LTCH inpatient hospital
services to eliminate the effect of coding or classification changes
that do not reflect real changes in LTCHs' case-mix. As discussed in
the RY 2007 LTCH PPS proposed rule and as reiterated above, it is
important to eliminate the effect of coding or classification changes
because, they do not reflect the true cost of treating patients.
Specifically, in this final rule, we are revising Sec.
412.523(c)(3)(iii) to specify that the standard Federal rate for the
LTCH PPS rate year beginning July 1, 2006 and ending June 30, 2007,
will be the standard Federal rate from the previous year, as explained
below. A zero percent update factor will reflect an adjustment to the
market basket update to account for the increase in the apparent case-
mix in the prior period. As explained in the RY 2007 LTCH PPS proposed
rule (71 FR 4669), based on our analysis of the observed LTCH case-mix
increase, we estimate that 4 percent of the 6.75 percent calculated
observed LTCH CMI increase is due to improvements in documentation and
coding and not due to an increase in the severity of the patients being
treated at LTCHs. As previously noted, the Federal payment rate was
offset by 0.34 percent to reflect expected behavioral changes,
including changes in coding. The recent estimate of apparent CMI
increase (4 percent) indicates that an additional 3.66 percent
adjustment (4 percent apparent CMI increase minus 0.34 percent
behavioral offset) should be made to the Federal payment rate to
account for improvements in coding.
Therefore, in the RY 2007 LTCH PPS proposed rule (71 FR 4669), we
proposed a zero percent update by offsetting the most recent estimate
of the proposed RPL market basket for RY 2007 of 3.6 percent by an
adjustment for changes in coding practices of 3.66 (that is, 4.0 - 0.34
= 3.66), which is within rounding of zero percent. As discussed above
in section V.B.4. of this final rule, the most recent estimate of the
RPL market basket for RY 2007 is 3.4 percent, which is 0.2 percent
lower than the estimate of the RPL market basket for RY 2007 at the
time of the development of the proposed rule. Although we note the most
recent update of the market basket discussed in this final rule is 0.2
percent lower than the estimate of the market basket discussed in the
RY 2007 LTCH PPS proposed rule, we continue to believe that a zero
percent update to the Federal rate for RY 2007 is appropriate and will
account for changes in coding practices that do not reflect increased
severity of LTCH patients for the reasons discussed below. As discussed
in greater detail above, changes in CMI consist of ``real'' CMI changes
and ``apparent'' CMI changes. In determining the proposed zero percent
update to the Federal rate for RY 2007, we measured LTCHs' observed
case-mix increase between FY 2003 and FY 2004, and we used the average
case-mix increase from the 3 years prior to the implementation of the
LTCH PPS as a proxy for the portion of that observed case-mix increase
that we consider to be ``real.'' We do not believe that there is a
significant difference between the most recent estimate of the market
basket for RY 2007 (3.4 percent) and the estimate used in the RY 2007
LTCH PPS proposed rule (3.6 percent). Furthermore, there could be some
minimal variation in how much of the observed case-mix increase
represents real case-mix changes. In addition, because the proposed
update for RY 2007 at proposed Sec. 412.523(c)(3)(iii) explicitly
specified that the RY 2007 standard Federal rate would be the previous
LTCH PPS rate year updated by an update factor of zero percent, we
believe some commenters may not have

[[Page 27827]]

been aware that the final update for RY 2007 could have been different
than (that is, greater than or less than) zero percent. Thus, we
believe that the best approach in this final rule is to adopt an update
factor of zero percent. For these reasons, we believe that a zero
percent update to the Federal rate for RY 2007 will appropriately
account for changes in coding practices that do not reflect increased
severity of LTCH patients. We note that, as discussed above, a zero
percent update is consistent with MedPAC's LTCH PPS update
recommendation for RY 2007. Therefore, in this final rule, under the
broad discretionary authority conferred upon the Secretary by section
123(a) of the BBRA as amended by section 307(b) of the BIPA to include
appropriate adjustments, including updates, in the establishment of the
LTCH PPS, for the reasons discussed previously in this final rule, we
are establishing a zero percent update to the standard Federal rate for
RY 2007. Accordingly, we are specifying under Sec. 412.525(c)(3)(iii)
that the standard Federal rate for the LTCH PPS rate year July 1, 2006
through June 30, 2007, will be the standard Federal rate from the
previous LTCH PPS rate year. Based on the zero percent update to the
Federal rate for RY 2007 LTCH PPS rate year, the LTCH PPS standard
Federal rate for the 2007 LTCH PPS rate year will be $38,086.04, as
discussed in section V.C.4. of this final rule.
As discussed in section V.B.4. of this preamble, the most recent
estimate of the LTCH PPS market basket is 3.4 percent for the 2007 LTCH
PPS rate year. If we were not revising Sec. 412.523(c)(3) to provide a
zero percent update to the standard Federal rate for the 2007 LTCH PPS
rate year to account for changes in coding that do not reflect real
changes in the severity and cost of LTCH patients presented in this
final rule, under existing Sec. 412.523(c)(3)(ii) the update would be
3.4 percent. We also note that although we are establishing a zero
percent update to the Federal rate for RY 2007 in this final rule, we
continue to believe that, based on the sizeable Medicare margins among
LTCHs, the standard Federal rate for the 2007 LTCH PPS rate year
established in this final rule will not affect beneficiary access to
LTCH services since LTCHs would continue to be paid adequately to
reflect the cost of resources needed to treat Medicare beneficiaries.
As we noted in the RY 2007 LTCH PPS proposed rule (71 FR 4670), the
revision to Sec. 412.525(c)(3) established in this final rule will
only address an update to the LTCH PPS Federal rate through the 2007
LTCH PPS rate year. We will propose future revisions to Sec.
412.525(c)(3) to address future proposed updates to the LTCH PPS
Federal rates in future rate years based on an analysis of the most
recent available LTCH data that would be presented in upcoming LTCH
proposed rules. As noted previously in this final rule and in the
August 30, 2002 final rule (67 FR 56097), we are examining the
potential for developing and implementing an update framework under the
LTCH PPS. We believe an update framework, used in combination with the
market basket, will enhance the methodology for updating payments by
addressing factors beyond changes in pure input prices (measured by the
market basket) such as case-mix, intensity, and productivity. (As noted
in section V.C.2 of this final rule, a preliminary model of an update
framework that may be proposed at some later date for future use under
the LTCH PPS is presented in Appendix A of this final rule.) However,
we are not proposing a specific annual update framework until we have
collected sufficient complete LTCH PPS data to evaluate payments and
costs under the LTCH PPS.
As discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4670),
currently as implemented in Sec. 412.523(d)(3), we are providing for
the possibility of making a one-time prospective adjustment to the LTCH
PPS rates so that any significant difference from actual payments and
the estimated payments for the first year of the LTCH PPS is not
perpetuated in the prospective payment rates for future years. As
discussed in section V.D.5. of this final rule, we are not making an
adjustment to the LTCH PPS rates under Sec. 412.523(d)(3) in this
final rule; however, we will continue to collect and interpret new data
to determine if an adjustment should be proposed in the future. In
addition, as also discussed in section IV.D.5. of this final rule, we
are postponing the deadline of the possible one-time prospective
adjustment to the LTCH PPS rates provided for in Sec. 412.523(d)(3) to
July 1, 2008 in order to maximize the availability of data used to
conduct a comprehensive evaluation of the LTCH PPS. However, as
explained above in this section, the zero percent update to the Federal
rate for the 2007 LTCH PPS rate year may make this one-time prospective
adjustment to the LTCH PPS Federal rate unnecessary if our
comprehensive analysis of the LTCH PPS determines that LTCH PPS
payments and the costs for LTCH services become aligned as a result of
this change.
4. Standard Federal Rate for the 2007 LTCH PPS Rate Year
In the RY 2006 LTCH PPS final rule (70 FR 24180), we established a
standard Federal rate of $38,086.04 for the 2006 LTCH PPS rate year
that was based on the best available data and policies established in
that final rule. In the RY 2007 LTCH PPS proposed rule (71 FR 4670), we
proposed a standard Federal rate of $38,086.04 for the 2007 LTCH PPS
rate year based on the best available data and policies presented in
that proposed rule. As we stated in that proposed rule, the standard
Federal rate of $38,086.04 was already adjusted for differences in
case-mix, wages, cost-of-living, and high-cost outlier (HCO) payments.
Therefore, we did not propose to make additional adjustments in the RY
2006 LTCH PPS standard Federal rate for those factors (70 FR 24180). In
this final rule, we are revising Sec. 412.523(c)(3) to establish a
standard Federal rate based on a zero percent update as discussed above
in section V. B. of this final rule. Therefore, based on the zero
percent update, the standard Federal rate for RY 2007 will be
$38,086.04. Since the standard Federal rate for the 2007 LTCH PPS rate
year has already been adjusted for differences in case-mix, wages,
cost-of-living, and HCO payments, we are not making any additional
adjustments in the standard Federal rate for these factors.

D. Calculation of LTCH Prospective Payments for the 2007 LTCH PPS Rate
Year

The basic methodology for determining prospective payment rates for
LTCH inpatient operating and capital-related costs is set forth in
Sec. 412.515 through Sec. 412.532. In accordance with Sec. 412.515,
we assign appropriate weighting factors to each LTC-DRG to reflect the
estimated relative cost of hospital resources used for discharges
within that group as compared to discharges classified within other
groups. The amount of the prospective payment is based on the standard
Federal rate, established under Sec. 412.523, and adjusted for the
LTC-DRG relative weights, differences in area wage levels, cost-of-
living in Alaska and Hawaii, HCOs, and other special payment provisions
(SSOs under Sec. 412.529 and interrupted stays under Sec. 412.531).
In accordance with Sec. 412.533, during the 5-year transition
period, payment is based on the applicable transition blend percentage
of the adjusted Federal rate and the reasonable cost-based payment rate
unless the LTCH makes a one-time election to receive payment based on

[[Page 27828]]

100 percent of the Federal rate. A LTCH defined as ``new'' under Sec.
412.23(e)(4) is paid based on 100 percent of the Federal rate with no
blended transition payments (Sec. 412.533(d)). As discussed in the
August 30, 2002 final rule (67 FR 56038), and in accordance with Sec.
412.533(a), the applicable transition blends are as shown in Table 5.

Table 5
------------------------------------------------------------------------
Reasonable
Cost reporting periods beginning on or Federal rate cost-based
after percentage payment rate
percentage
------------------------------------------------------------------------
October 1, 2002......................... 20 80
October 1, 2003......................... 40 60
October 1, 2004......................... 60 40
October 1, 2005......................... 80 20
October 1, 2006......................... 100 0
------------------------------------------------------------------------

Accordingly, for cost reporting periods beginning during FY 2005
(that is, on or after October 1, 2004, and on or before September 30,
2005), blended payments under the transition methodology are based on
40 percent of the LTCH's reasonable cost-based payment rate and 60
percent of the adjusted LTCH PPS Federal rate. For cost reporting
periods that begin during FY 2006 (that is, on or after October 1, 2005
and on or before September 30, 2006), blended payments under the
transition methodology will be based on 20 percent of the LTCH's
reasonable cost-based payment rate and 80 percent of the adjusted LTCH
PPS Federal rate. For cost reporting periods beginning on or after
October 1, 2006 (FY 2007), Medicare payment to LTCHs will be determined
entirely (100 percent) under the LTCH PPS Federal rate.
1. Adjustment for Area Wage Levels
a. Background
Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS Federal rate to account for differences in LTCH area wage levels at
Sec. 412.525(c). The labor-related share of the LTCH PPS Federal rate,
currently estimated by the excluded hospital with capital market
basket, is adjusted to account for geographic differences in area wage
levels by applying the applicable LTCH PPS wage index. The applicable
LTCH PPS wage index is computed using wage data from inpatient acute
care hospitals without regard to reclassification under sections
1886(d)(8) or 1886(d)(10) of the Act. Furthermore, as we discussed in
the August 30, 2002 LTCH PPS final rule (67 FR 56015), we established a
5-year transition to the full wage adjustment. The applicable wage
index phase-in percentages are based on the start of a LTCH's cost
reporting period as shown in Table 6.

Table 6.--LTCH PPS Wage Index Phase-In Percentages
------------------------------------------------------------------------
Cost reporting periods beginning Phase-In percentage of the full wage
on or after index
------------------------------------------------------------------------
October 1, 2002.................. \1/5\ (20 percent).
October 1, 2003.................. \2/5\ (40 percent).
October 1, 2004.................. \3/5\ (60 percent).
October 1, 2005.................. \4/5\ (80 percent).
October 1, 2006.................. \5/5\ (100 percent).
------------------------------------------------------------------------

For example, for cost reporting periods beginning on or after
October 1, 2004 and on or before September 30, 2005 (FY 2005), the
applicable LTCH wage index value is three-fifths of the applicable full
LTCH PPS wage index value. Similarly, for cost reporting periods
beginning on or after October 1, 2005 and on or before September 30,
2006 (FY 2006), the applicable LTCH wage index value will be four-
fifths of the applicable full LTCH PPS wage index value. The wage index
adjustment will be completely phased-in beginning with cost reporting
periods beginning in FY 2007, that is, for cost reporting periods
beginning on or after October 1, 2006, the applicable LTCH wage index
value will be the full (five-fifths) LTCH PPS wage index value. As we
established in the August 30, 2002 LTCH PPS final rule (67 FR 56018),
the applicable full LTCH PPS wage index value is calculated from acute-
care hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act.
In that same final rule (67 FR 56018), we stated that we would
continue to reevaluate LTCH data as they become available and would
propose to adjust the phase-in if subsequent data support a change. As
we discussed in the RY 2006 LTCH PPS final rule (70 FR 24181), because
the LTCH PPS was only recently implemented (slightly over 2 years) and
because of the time lag in availability of cost report data, sufficient
new data have not been generated that would enable us to conduct a
comprehensive reevaluation of the appropriateness of adjusting the
phase-in. As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR
4670), we have reviewed the most recent data (FY 2002 through FY 2004)
available and did not find any evidence to support a change in the 5-
year phase-in of the wage index. Specifically, our statistical analysis
still does not show a significant relationship between LTCHs' costs and
their geographic location. Therefore, in that proposed rule, we did not
propose a change to the phase-in of the adjustment for area wage levels
under Sec. 412.525(c). We received no comments on the phase-in of the
wage index. Therefore, as we proposed, we are making no change in the
5-year phase-in of the wage index in this final rule.

[[Page 27829]]

b. Geographic Classifications/Labor Market Area Definitions
As discussed in the August 30, 2002 LTCH PPS final rule, which
implemented the LTCH PPS (67 FR 56015 through 56019), in establishing
an adjustment for area wage levels under Sec. 412.525(c), the labor-
related portion of a LTCH's Federal prospective payment is adjusted by
using an appropriate wage index based on the labor market area in which
the LTCH is located. In the 2006 LTCH PPS rate year final rule (70 FR
24184 through 24185), in Sec. 412.525(c), we revised the labor market
area definitions used under the LTCH PPS effective for discharges
occurring on or after July 1, 2005 based on the Office of Management
and Budget's (OMB) Core Based Statistical Area (CBSA) designations
based on 2000 Census data because we believe that those new labor
market area definitions will ensure that the LTCH PPS wage index
adjustment most appropriately accounts for and reflects the relative
hospital wage levels in the geographic area of the hospital as compared
to the national average hospital wage level. As set forth in Sec.
412.525(c)(2), a LTCH's wage index is determined based on the location
of the LTCH in an urban or rural area as defined in Sec.
412.64(b)(1)(ii)(A) through (C). An urban area under the LTCH PPS is
defined at Sec. 412.64(b)(1)(ii)(A) and (B). In general, an urban area
is defined as a Metropolitan Statistical Area (MSA) as defined by the
OMB. (In addition, a few counties located outside of MSAs are
considered urban as specified at Sec. 412.64(b)(1)(ii)(B).) Under
Sec. 412.64(b)(1)(ii)(C), a rural area is defined as any area outside
of an urban area.
We note that these are the same CBSA-based designations implemented
for acute care inpatient hospitals under the IPPS at Sec. 412.64(b)
effective October 1, 2004 (69 FR 49026 through 49034). For further
discussion of the labor market area (geographic classification)
definitions used under the LTCH PPS, see the 2006 LTCH PPS rate year
final rule (70 FR 24182 through 24191).
c. Labor-Related Share
In the August 30, 2002 LTCH PPS final rule (67 FR 56016), we
established a labor-related share of 72.885 percent based on the
relative importance of the labor-related share of operating costs
(wages and salaries, employee benefits, professional fees, postal
services, and all other labor-intensive services) and capital costs of
the excluded hospital with capital market basket based on FY 1992 data.
In the June 6, 2003 final rule (68 FR 34142), in conjunction with our
revision and rebasing of the excluded hospital with capital market
basket from a FY 1992 to a FY 1997 base year, we discussed revising the
labor-related share based on the relative importance of the labor-
related share of operating and capital costs of the excluded hospital
with capital market basket based on FY 1997 data. However, in the June
6, 2003 final rule (68 FR 34142), while we adopted the revised and
rebased FY 1997-based LTCH PPS market basket as the LTCH PPS update
factor for the 2004 LTCH PPS rate year, we decided not to update the
labor-related share under the LTCH PPS pending further analysis of the
current labor share methodology.
In LTCH PPS final rules subsequent to the FY 2003 LTCH PPS final
rule in which we established the current labor-related share (68 FR
34142, 69 FR 25685 through 25686 and 70 FR 24182), we explained that
the primary reason that we did not update the LTCH PPS labor-related
share for the 2004, 2005 and 2006 LTCH PPS rate years was because of
data and methodological concerns, which was the same reason for not
updating the labor-related share under the IPPS for FY 2004 (68 FR
45467 through 45468) and FY 2005 (69 FR 49069)), which are equally
applicable to the LTCH PPS. We indicated that we would conduct further
analysis to determine the most appropriate methodology and data for
determining the labor-related share. We also stated that we would
propose to update the IPPS and excluded hospital labor-related shares,
if necessary, once our research is complete.
In the FY 2006 IPPS final rule, the labor-related share under the
IPPS that is ``estimated by the Secretary from time to time'' as
specified in section 1886(d)(3)(E) of the Act was revised and rebased
based on the FY 2002-based IPPS hospital market basket for discharges
occurring on or after October 1, 2005 using our established methodology
of defining the labor-related share as the national average proportion
of operating costs that are attributable to wages and salaries, fringe
benefits, professional fees, contract labor, and labor intensive
services. Therefore, the IPPS labor-related share ``estimated by the
Secretary from time to time'' was calculated by adding the relative
weights for these operating cost categories. In that same final rule we
stated that we continue to believe, as we stated in the past, that
these operating cost categories likely are related to, are influenced
by, or vary with the local markets (70 FR 47392 through 47393). (We
note that section 403 of the MMA amended sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ
62 percent as the labor-related share under the IPPS unless this
employment ``would result in lower payments than would otherwise be
made.'') In that same final rule, we also revised and rebased the
excluded hospital market basket, which is used to update the reasonable
cost-based portion of LTCHs' blended transition payments (70 FR 47399
through 47403).
As we stated previously, once our research into the labor-related
share methodology was complete, we would update the IPPS and excluded
hospital labor-related shares based on that research and the best
available data if necessary. In the RY 2007 LTCH PPS proposed rule (71
FR 4671 through 4672), we proposed to update the LTCH PPS labor-related
share based on the proposed RPL market basket (which is described in
section V.B. of this preamble). As explained in that proposed rule, we
proposed to adopt the RPL market basket under the LTCH PPS because we
believe that this market basket would be developed based on the best
available data that reflect the cost structures of LTCHs. Therefore, we
proposed to revise the LTCH PPS labor-related share from 72.885 percent
(as established in the August 30, 2002 final rule (67 FR 56016) based
on the FY 1997-based excluded hospital with capital market basket) to
75.923 percent based on the relative importance of the labor-related
share of operating costs (wages and salaries, employee benefits,
professional fees, and all other labor-intensive services) and capital
costs of the RPL market basket based on FY 2002 data. We also proposed
that if more recent data become available before the publication of the
final rule and if we ultimately revise the LTCH PPS labor-related share
based on the proposed FY 2002-based RPL market basket, we would use
that data to determine the labor-related share for the 2007 LTCH PPS
rate year in the final rule.
We received no comments on our proposal to update the LTCH PPS
labor-related share based on the RPL market basket beginning in RY
2007. (As discussed above, we received a few comments on our proposal
to adopt the RPL market basket under the LTCH PPS. Those comments and
responses are presented in section V.B. of this preamble.) Therefore,
in this final rule, we are updating the LTCH PPS labor-related share
based on the RPL market basket (which is described in section V.B. of
this preamble). We are adopting the RPL market basket under the LTCH
PPS because we believe that this market

[[Page 27830]]

basket was developed based on the best available data that reflect the
cost structures of LTCHs. As discussed in section V.B. of this
preamble, we now have data from the first quarter of 2006 in
determining the FY 2002-based RPL market basket. Based on this more
recent data, in this final rule, we are revising the LTCH PPS labor-
related share from 72.885 percent (as established in the August 30,
2002 final rule (67 FR 56016) based on the FY 1997-based excluded
hospital with capital market basket) to 75.665 percent based on the
relative importance of the labor-related share of operating costs
(wages and salaries, employee benefits, professional fees, and all
other labor-intensive services) and capital costs of the RPL market
basket based on FY 2002 data, as discussed in greater detail below in
this final rule. As discussed in the RY 2007 LTCH PPS proposed rule (71
FR 4672), consistent with our historical practice, the labor-related
share is determined by identifying the national average proportion of
operating costs that are related to, influenced by, or varies with the
local labor market. Using our current definition of labor-related, the
labor-related share is the sum of the relative importance of wages and
salaries, fringe benefits, professional fees, labor-intensive services,
and a portion of the capital share from an appropriate market basket.
We are using the FY 2002-based RPL market basket costs to determine the
labor-related share for the LTCH PPS effective for discharges occurring
on or after July 1, 2006 as it is based on the most recent available
data. The labor-related share for the 2007 LTCH PPS rate year will be
the sum of the relative importance of each labor-related cost category,
and will reflect the different rates of price change for these cost
categories between the base year (FY 2002) and the 2007 LTCH PPS rate
year. Based on the most recent available data, the sum of the relative
importance for 2007 LTCH PPS rate year for operating costs (wages and
salaries, employee benefits, professional fees, and labor-intensive
services) will be 71.586, as shown in Table 7. The portion of capital
that is influenced by the local labor market is estimated to be 46
percent, which is the same percentage used in the FY 1997-based
excluded hospital with capital market basket currently used under the
LTCH PPS. Since the relative importance for capital will be 8.867
percent of the FY 2002-based RPL market basket for the 2007 LTCH PPS
rate year based on the latest available data, we are multiplying the
estimated portion of capital influenced by the local labor market (46
percent) by the relative importance for capital of the FY 2002-based
RPL market basket (8.867 percent) to determine the labor-related share
of capital for the 2007 LTCH PPS rate year. The result will be 4.079
percent (0.46 x 8.867 percent), which we add to 71.586 percent for the
operating cost amount to determine the total labor-related share for
the 2007 LTCH PPS rate year. Thus, based on the latest available data,
we are using a labor-related share of 75.665 percent under the LTCH PPS
for the 2007 LTCH PPS rate year. This labor-related share is determined
using the same methodology as employed in calculating the current LTCH
labor-related share (67 FR 56016).
Table 7 shows the 2007 LTCH PPS rate year relative importance
labor-related share using the FY 2002-based RPL market basket and the
current relative importance labor-related share using the FY 1997-based
excluded hospital with capital market basket.

Table 7.--Total Labor-Related Share--Relative Importance for the 2007
for the RPL Market Basket and the Excluded Hospital With Capital Market
Basket
------------------------------------------------------------------------
FY 1997-based
FY 2002-based excluded
RPL market hospital with
basket capital market
relative basket
Cost category importance importance
(percent) for (percent
the 2007 LTCH currently used
PPS rate year under relative
the LTCH PPS)
------------------------------------------------------------------------
Wages and salaries...................... 52.506 48.021
Employee benefits....................... 14.042 11.534
Professional fees....................... 2.886 4.495
Postal Services*........................ .............. 0.635
All other labor-intensive services**.... 2.152 4.411
-------------------------------
Subtotal............................ 71.586 69.096
===============================
Labor-related share of capital costs.... 4.079 3.222
===============================
Total........................... 75.665 72.318
------------------------------------------------------------------------
* No longer considered labor related.
** Other labor intensive services includes landscaping services,
services to buildings, detective and protective services, repair
services, laundry services, advertising, auto parking and repairs,
physical fitness facilities, and other government enterprises.

d. Wage Index Data
In the RY 2006 LTCH PPS final rule (70 FR 24190 through 24191), we
established LTCH PPS wage index values for the 2006 LTCH PPS rate year
calculated from the same data (generated in cost reporting periods
beginning during FY 2000) used to compute the FY 2005 acute care
hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act because that was the best available data at that time. The LTCH
wage index values applicable for discharges occurring on or after July
1, 2005 through June 30, 2006 are shown in Table 1 (for urban areas)
and Table 2 (for rural areas) in the Addendum to the RY 2006 LTCH PPS
final rule. Acute care hospital inpatient wage index data are also used
to establish the wage index adjustment used in the IRF PPS, HHA PPS,
and SNF PPS. As we discussed in the August 30, 2002 LTCH PPS final

[[Page 27831]]

rule (67 FR 56019), since hospitals that are excluded from the IPPS are
not required to provide wage-related information on the Medicare cost
report and because we would need to establish instructions for the
collection of this LTCH data in order to establish a geographic
reclassification adjustment under the LTCH PPS, the wage adjustment
established under the LTCH PPS is based on a LTCH's actual location
without regard to the urban or rural designation of any related or
affiliated provider.
In the RY 2007 LTCH PPS proposed rule (71 FR 4673), under the broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA to determine appropriate
adjustments under the LTCH PPS, for the 2007 LTCH PPS rate year, we
proposed to use the same data (generated in cost reporting periods
beginning during FY 2002) that was used to compute the FY 2006 acute
care hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act to determine the applicable wage index values under the LTCH
PPS because these data (FY 2002) are the most recent complete data. In
that same proposed rule, we explained that we are continuing to propose
to use IPPS wage data as a proxy to determine the LTCH wage index
values for the 2007 LTCH PPS rate year because both LTCHs and acute-
care hospitals are required to meet the same certification criteria set
forth in section 1861(e) of the Act to participate as a hospital in the
Medicare program and they both compete in the same labor markets, and
therefore experience similar wage-related costs. We also noted that
these data are the same FY 2002 acute care hospital inpatient wage data
that were used to compute the FY 2006 wage indices currently used under
the IPPS, SNF PPS and HHA PPS. The proposed wage index values that
would be applicable for discharges occurring on or after July 1, 2006
through June 30, 2007 are shown in Table 1 (for urban areas) and Table
2 (for rural areas) in the Addendum to the RY 2007 LTCH PPS proposed
rule (71 FR 4747 through 4771).
We received no comments on the proposed wage index values that
would be applicable for discharges occurring on or after July 1, 2006
through June 30, 2007. Therefore, in this final rule, under the broad
authority conferred upon the Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA to determine appropriate
adjustments under the LTCH PPS, for the 2007 LTCH PPS rate year, we are
using the same data (generated in cost reporting periods beginning
during FY 2002) that was used to compute the FY 2006 acute care
hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act to determine the applicable wage index values under the LTCH
PPS because these data (FY 2002) are the most recent complete data. We
are continuing to use IPPS wage data as a proxy to determine the LTCH
wage index values for the 2007 LTCH PPS rate year because both LTCHs
and acute-care hospitals are required to meet the same certification
criteria set forth in section 1861(e) of the Act to participate as a
hospital in the Medicare program and they both compete in the same
labor markets, and therefore experience similar wage-related costs.
These data are the same FY 2002 acute care hospital inpatient wage data
that were used to compute the FY 2006 wage indices currently used under
the IPPS, SNF PPS and HHA PPS. The LTCH wage index values that will be
applicable for discharges occurring on or after July 1, 2006 through
June 30, 2007, are shown in Tables 1 (for urban areas) and Tables 2
(for rural areas) in the Addendum to this final rule.
As discussed in section V.D.1.a. of this preamble, the applicable
wage index phase-in percentages are based on the start of a LTCH's cost
reporting period beginning on or after October 1st of each year during
the 5-year transition period. Thus, for cost reporting periods
beginning on or after October 1, 2004 and before October 1, 2005 (FY
2005), the labor portion of the standard Federal rate is adjusted by
three-fifths of the applicable LTCH wage index value. For cost
reporting periods beginning on or after October 1, 2005 and before
October 1, 2006 (FY 2006), the labor portion of the standard Federal
rate is adjusted by four-fifths of the applicable LTCH wage index
value. Specifically, for a LTCH's cost reporting period beginning
during FY 2006, for discharges occurring on or after July 1, 2006
through June 30, 2007, the applicable wage index value will be four-
fifths of the full FY 2006 acute care hospital inpatient wage index
data, without taking into account geographic reclassification under
sections 1886(d)(8) and (d)(10) of the Act (shown in Tables 1 and 2 in
the Addendum to this final rule).
Because the phase-in of the wage index does not coincide with the
LTCH PPS rate year (July 1st through June 30th), most LTCHs will
experience a change in the wage index phase-in percentages during the
LTCH PPS rate year. For example, during the 2007 LTCH PPS rate year,
for a LTCH with a January 1 fiscal year, the four-fifths wage index
will be applicable for the first 6 months of the 2007 LTCH PPS rate
year (July 1, 2006 through December 31, 2006) and the full (five-
fifths) wage index will be applicable for the second 6 months of the
2007 LTCH PPS rate year (January 1, 2007 through June 30, 2007). We
also note that some providers will still be in the third year of the 5-
year phase-in of the LTCH wage index (that is, those LTCHs who entered
the 5-year phase-in during their cost reporting periods that began
between July 1, 2003 and September 30, 2003). For the remainder of
those LTCHs' FY 2005 cost reporting periods that will coincide with the
first 3 months of RY 2007, the applicable wage index value will be
three-fifths of the full FY 2006 acute care hospital inpatient wage
index data, without taking into account geographic reclassification
under sections 1886(d)(8) and (d)(10) of the Act (as shown in Tables 1
and 2 in the Addendum to this final rule). Since there are no longer
any LTCHs in their cost reporting period that began during FY 2003 and
FY 2004 (the first and second years of the 5-year wage index phase-in),
we are no longer showing the \1/5\ and \2/5\ wage index values in
Tables 1 and 2 in the Addendum to this final rule.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
In the August 30, 2002 final rule (67 FR 56022), we established,
under Sec. 412.525(b), a cost-of-living adjustment (COLA) for LTCHs
located in Alaska and Hawaii to account for the higher costs incurred
in those States. In the RY 2006 LTCH PPS final rule (70 FR 24191), for
the 2006 LTCH PPS rate year, we established that we make a COLA to
payments for LTCHs located in Alaska and Hawaii by multiplying the
standard Federal payment rate by the appropriate factor listed in Table
I. of that same final rule.
Similarly, in the RY 2007 LTCH PPS proposed rule (71 FR 4673
through 4674), under broad authority conferred upon the Secretary by
section 123 of the BBRA as amended by section 307(b) of the BIPA to
determine appropriate adjustments under the LTCH PPS, for the 2007 LTCH
PPS rate year we proposed to make a COLA to payments to LTCHs located
in Alaska and Hawaii by multiplying the standard Federal payment rate
by the factors listed in Table 8 of that proposed rule because those
were currently the most recent available data. Those factors were
obtained from the U.S. Office of

[[Page 27832]]

Personnel Management (OPM) and are currently used under the IPPS. In
addition, we also proposed that if OPM releases revised COLA factors
before March 1, 2006, we would use them for the development of the
payments for the 2007 LTCH rate year and publish them in the LTCH PPS
final rule.
We received no comments on the proposed COLA factors for LTCHs
located in Alaska and Hawaii for RY 2007. We also note that OPM has not
released revised COLA factors since the publication of the RY 2007 LTCH
PPS proposed rule. Therefore, in this final rule, under broad authority
conferred upon the Secretary by section 123 of the BBRA as amended by
section 307(b) of the BIPA to determine appropriate adjustments under
the LTCH PPS, for the 2007 LTCH PPS rate year we are making a COLA to
payments to LTCHs located in Alaska and Hawaii by multiplying the
standard Federal payment rate by the factors listed in Table 8 because
these are currently the most recent available data. These factors are
obtained from OPM and are currently used under the IPPS.

Table 8.--Cost-of-Living Adjustment Factors for Alaska and Hawaii
Hospitals for the 2007 LTCH PPS Rate Year
------------------------------------------------------------------------

------------------------------------------------------------------------
Alaska:
All areas.................................................. 1.25
Hawaii:
Honolulu County............................................ 1.25
Hawaii County.............................................. 1.165
Kauai County............................................... 1.2325
Maui County................................................ 1.2375
Kalawao County............................................. 1.2375
------------------------------------------------------------------------

3. Adjustment for High-Cost Outliers (HCOs)
a. Background
Under the broad authority conferred upon the Secretary by section
123 of the BBRA as amended by section 307(b) of the BIPA, in the
regulations at Sec. 412.525(a), we established an adjustment for
additional payments for outlier cases that have extraordinarily high
costs relative to the costs of most discharges. Providing additional
payments for outliers strongly improves the accuracy of the LTCH PPS in
determining resource costs at the patient and hospital level. These
additional payments reduce the financial losses that would otherwise be
caused by treating patients who require more costly care and,
therefore, reduce the incentives to underserve these patients. We set
the outlier threshold before the beginning of the applicable rate year
so that total estimated outlier payments are projected to equal 8
percent of total estimated payments under the LTCH PPS. Outlier
payments under the LTCH PPS are determined consistent with the IPPS
outlier policy.
Under Sec. 412.525(a), we make outlier payments for any discharges
if the estimated cost of a case exceeds the adjusted LTCH PPS payment
for the LTC-DRG plus a fixed-loss amount. The fixed-loss amount is the
amount used to limit the loss that a hospital will incur under the
outlier policy for a case with unusually high costs. This results in
Medicare and the LTCH sharing financial risk in the treatment of
extraordinarily costly cases. Under the LTCH PPS HCO policy, the LTCH's
loss is limited to the fixed-loss amount and a fixed percentage of
costs above the marginal cost factor. We calculate the estimated cost
of a case by multiplying the overall hospital cost-to-charge ratio
(CCR) by the Medicare allowable covered charge. In accordance with
Sec. 412.525(a)(3), we pay outlier cases 80 percent of the difference
between the estimated cost of the patient case and the outlier
threshold (the sum of the adjusted Federal prospective payment for the
LTC-DRG and the fixed-loss amount).
Under the LTCH PPS, we determine a fixed-loss amount, that is, the
maximum loss that a LTCH can incur under the LTCH PPS for a case with
unusually high costs before the LTCH will receive any additional
payments. We calculate the fixed-loss amount by estimating aggregate
payments with and without an outlier policy. The fixed-loss amount will
result in estimated total outlier payments being projected to be equal
to 8 percent of projected total LTCH PPS payments. Currently, MedPAR
claims data and CCRs based on data from the most recent provider
specific file (PSF) (or to the applicable Statewide average CCR if a
LTCH's CCR data are faulty or unavailable) are used to establish a
fixed-loss threshold amount under the LTCH PPS.
b. Cost-To-Charge Ratios (CCRs)
In determining outlier payments, we calculate the estimated cost of
the case by multiplying the LTCH's overall CCR by the Medicare
allowable charges for the case.
As we discussed in greater detail in the June 9, 2003 IPPS HCO
final rule (68 FR 34506 through 34516), because the LTCH PPS HCO policy
(Sec. 412.525) is modeled after the IPPS outlier policy, we believed
that it and the SSO policy (Sec. 412.529) are susceptible to the same
payment vulnerabilities that became evident under the IPPS, and
therefore, merited revision. Thus, we revised the HCO policy at Sec.
412.525(a) and short-stay policy at Sec. 412.529 in that same final
rule for the determination of LTCHs' CCRs and the reconciliation of
outlier payments.
As discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4674),
under the LTCH PPS, a single prospective payment per discharge is made
for both inpatient operating and capital-related costs, and therefore,
we compute a single ``overall'' or ``total'' CCR for LTCHs based on the
sum of their operating and capital costs (as described in Chapter 3,
section 150.24, of the Medicare Claims Processing Manual (CMS Pub. 100-
4)) as compared to total charges. Specifically, a LTCH's CCR is
calculated by dividing a LTCH's total Medicare costs (that is, the sum
of its operating and capital inpatient routine and ancillary costs)
divided by its total Medicare charges (that is, the sum of its
operating and capital inpatient routine and ancillary charges).
In the RY 2007 LTCH PPS proposed rule (71 FR 4674 through 4676, and
4690 through 4692), we discussed our current methodology for
determining hospitals' CCRs under the LTCH PPS HCO and SSO policies,
and we presented a proposal to refine our methodology for determining
the annual CCR ceiling and statewide average CCRs. In that same
proposed rule, we also discussed our existing policy for the
reconciliation of LTCH PPS high-cost and SSO payments along with our
proposal to codify in subpart O of part 412 those policies, including
proposed modifications and editorial clarifications to the existing
policies.
Historically, annual updates to the LTCH CCR ceiling and statewide
average CCRs have been effective October 1. In the RY 2007 LTCH PPS
proposed rule, we proposed revisions to the policies governing the
determination of LTCHs' CCRs and the reconciliation of HCO and SSO
payments which would be effective October 1, 2006. In addition, we
stated that the specific LTCH CCR ceiling and statewide average CCRs
reflecting these proposed policy changes, which would be effective
October 1, 2006, and would be presented in the annual IPPS proposed and
final rules.
We received a few specific comments concerning the proposed changes
to the policies governing the determination of LTCHs' CCRs. Several
other commenters referenced one of the specific comments of another
commenter on the proposed changes to the methodology for determining
LTCH CCRs in their own comments on the RY 2007 LTCH PPS proposed rule.
Based on a commenter's synopsis of our proposed changes

[[Page 27833]]

concerning the determination of LTCH's CCRs, we believe that the
commenters clearly understood the nature and purpose of the proposed
changes. However, the commenters stated that in the RY 2007 LTCH PPS
proposed rule, we did not provide an analysis of the effect of the
proposed change, nor did we provide an example of the new CCR values
under this proposed methodology. Another commenter did not ``object in
concept to the proposed combination of [IPPS] operating and capital
cost-to-charge ratios' to compute a ``total'' CCR for each IPPS
hospital by adding together each hospital's operating CCR and its
capital CCR from which to compute the LTCH CCR ceiling and applicable
statewide average CCRs. However, the commenter also pointed out that we
did not provide any impact data and requested that we defer adoption of
the proposed change until such data are provided for comment.
Therefore, in the FY 2007 IPPS proposed rule (71 FR 24126 through
24135), we again proposed these same changes to the policies governing
the determination of LTCHs' CCRs and the reconciliation of HCO and SSO
payments that we proposed in the RY 2007 LTCH PPS proposed rule. Along
with that proposal, we also included in that IPPS proposed rule the
values of the proposed LTCH CCR ceiling (1.131) and the proposed
statewide average LTCH CCRs (as shown in Table 8C of the FY 2007 IPPS
proposed rule; 71 FR 24377) that would be effective October 1, 2006,
based on our proposed policy changes (along with the proposed values of
the LTCH CCR ceiling and statewide average CCRs that would be
determined under our current methodology). Therefore, in this final
rule, we are not finalizing any changes to the policies governing the
determination of LTCHs' CCRs or the reconciliation of LTCH PPS HCO and
SSO payments. We will further respond to any comments received on the
proposal concerning changes to the policies governing the determination
of LTCHs' CCRs and the reconciliation of LTCH PPS HCO and SSO payments
presented again in the FY 2007 IPPS proposed rule (71 FR 24126 through
24132) in the FY 2007 IPPS final rule that will be published this
summer.
c. Establishment of the Fixed-Loss Amount
When we implemented the LTCH PPS, as discussed in the August 30,
2002 final rule (67 FR 56022 through 56026), under the broad authority
of section 123 of the BBRA as amended by section 307(b) of the BIPA, we
established a fixed-loss amount so that total estimated outlier
payments are projected to equal 8 percent of total estimated payments
under the LTCH PPS. To determine the fixed-loss amount, we estimate
outlier payments and total LTCH PPS payments for each case using claims
data from the MedPAR files. Specifically, to determine the outlier
payment for each case, we estimate the cost of the case by multiplying
the Medicare covered charges from the claim by the LTCH's hospital
specific CCR. Under Sec. 412.525(a)(3), if the estimated cost of the
case exceeds the outlier threshold (the sum of the adjusted Federal
prospective payment for the LTC-DRG and the fixed-loss amount), we pay
an outlier payment equal to 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
adjusted Federal prospective payment for the LTC-DRG and the fixed-loss
amount).
In the RY 2006 LTCH PPS final rule (70 FR 24194), in calculating
the fixed-loss amount that would result in outlier payments projected
to be equal to 8 percent of total estimated payments for the 2006 LTCH
PPS rate year, we used claims data from the December 2004 update of the
FY 2004 MedPAR files and CCRs from the December 2004 update of the PSF,
as that was the best available data at that time. As we discussed in
that same final rule (70 FR 24193 through 24194), we believe that CCRs
from the PSF were the best available CCR data for determining LTCHs'
PPS payments during the 2006 LTCH PPS rate year because they were the
most recently available CCRs (at that time) actually used to make LTCH
PPS payments.
As we also discussed in the RY 2006 LTCH PPS rate year final rule
(70 FR 24192 through 24193), we calculated a single fixed-loss amount
for the 2006 LTCH PPS rate year based on the version 22.0 of the
GROUPER, which was the version in effect as of the beginning of the
LTCH PPS rate year (that is, July 1, 2005 for the 2006 LTCH PPS rate
year). In addition, we applied the current outlier policy under Sec.
412.525(a) in determining the fixed-loss amount for the 2006 LTCH PPS
rate year; that is, we assigned the applicable Statewide average CCR
only to LTCHs whose CCRs exceeded the ceiling (and not when they fell
below the floor). Accordingly, we used the FY 2005 IPPS combined
operating and capital CCR ceiling of 1.409 (70 FR 24192). (Our
rationale for using the FY 2005 combined IPPS operating and capital CCR
ceiling for LTCHs is stated in section V.D.3.b. of this preamble.) As
noted in that same final rule, in determining the fixed-loss amount for
the 2006 LTCH PPS rate year using the CCRs from the PSF, there were no
LTCHs with missing CCRs or with CCRs in excess of the current ceiling
and, therefore, there was no need for us to independently assign the
applicable Statewide average CCR to any LTCHs in determining the fixed-
loss amount for the 2006 LTCH PPS rate year (as this may have already
been done by the FI in the PSF in accordance with the established
policy).
Accordingly, in the RY 2006 LTCH PPS final rule (70 FR 24194), we
established a fixed-loss amount of $10,501 for the 2006 LTCH PPS rate
year. Thus, we pay an outlier case 80 percent of the difference between
the estimated cost of the case and the outlier threshold (the sum of
the adjusted Federal LTCH PPS payment for the LTC-DRG and the fixed-
loss amount of $10,501).
In the RY 2007 LTCH PPS proposed rule (71 FR 4676 through 4678), we
used the June 2005 update of the FY 2004 MedPAR claims data to
determine a fixed-loss amount that would result in outlier payments
projected to be equal to 8 percent of total estimated payments, based
on the policies described in that proposed rule, because those data
were the most recent complete LTCH data available at that time.
Furthermore, we proposed to determined the fixed-loss amount based on
the version of the GROUPER that would be in effect as of the beginning
of the 2007 LTCH PPS rate year (July 1, 2006), that is, Version 23.0 of
the GROUPER (70 FR 47324).
As also discussed in the RY 2007 LTCH PPS proposed rule (71 FR
4676), we used CCRs from the June 2005 update of the PSF for
determining the fixed-loss amount for the 2007 LTCH PPS rate year as
they were the most recent complete available data at that time. We
further proposed that if more recent CCR data are available, we propose
to use it for determining the fixed-loss amount for the 2007 LTCH PPS
rate year in the final rule. In determining the proposed fixed-loss
amount for the 2007 LTCH PPS rate year, we also used the current FY
2006 applicable IPPS combined operating and capital CCR ceiling of
1.423 and Statewide average CCRs (as discussed in the FY 2006 IPPS
final rule (70 FR 47496) and established in Transmittal 692 (September
30, 2005)) such that the current applicable Statewide average CCR will
be assigned if, among other things, a LTCH's CCR exceeded the current
ceiling (1.423). As explained in the RY 2007 LTCH PPS proposed rule (71
FR 4677), our rationale for using the existing LTCH CCR ceiling and

[[Page 27834]]

Statewide average CCRs to determine the proposed RY 2007 fixed-loss
amount even though we proposed to change our methodology for
determining the CCR ceiling and Statewide average CCRs effective for
discharges occurring on or after October 1, 2006, was because, based on
our analysis of the data used to determine the FY 2006 LTCH CCR
ceiling, we believe that the proposed methodology change would result
in a minor change in the numerical value of the LTCH CCR ceiling, and
therefore, would have a negligible effect on the LTCHs' CCRs used to
determine the proposed fixed-loss amount for the 2007 LTCH PPS rate
year. Moreover, as we noted in that same proposed rule, in determining
the proposed fixed-loss amount for the 2007 LTCH PPS rate year using
the CCRs from the PSF, there was no need for us to independently assign
the applicable Statewide average CCR to any LTCHs (as this may have
already been done by the FI in the PSF in accordance with our
established policy).
In the RY 2007 LTCH PPS proposed rule (71 FR 4677), based on the
data and policies described in that proposed rule, the proposed fixed-
loss amount would be $18,489 for the 2007 LTCH PPS rate year. Thus, we
would pay an outlier case 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
adjusted Federal LTCH payment for the LTC-DRG and the fixed-loss amount
of $18,489). We also noted that the proposed fixed-loss amount for the
2007 LTCH PPS rate year was significantly higher than the current
fixed-loss amount of $10,501. In that proposed rule, we explained that
the change in the proposed fixed-loss amount was primarily due to the
projected decrease in LTCH PPS payments resulting from the proposed
change in the SSO policy under Sec. 412.529 and the changes to the
LTC-DRG relative weights for FY 2006. Specifically, because we
projected approximately an 11 percent decrease in aggregate LTCH PPS
payments in the 2007 LTCH PPS rate year based on the proposed policies
presented in the proposed rule, we believed that a proposed increase in
the fixed-loss amount would be appropriate and necessary to maintain
the requirement that estimated outlier payments would equal 8 percent
of estimated total LTCH PPS payments, as required under Sec.
412.525(a). Maintaining the proposed fixed-loss amount at the current
level would result in HCO payments that significantly exceed the
current regulatory requirement that estimated outlier payments will be
projected to equal 8 percent of estimated total LTCH PPS payments.
We also noted that in the August 30, 2002 final rule (67 FR 56022
through 56024), based on our regression analysis, we established the
outlier target at 8 percent of estimated total LTCH PPS payments to
allow us to achieve a balance between the ``conflicting considerations
of the need to protect hospitals with costly cases, while maintaining
incentives to improve overall efficiency.'' In that same final rule (67
FR 56023), we also explained that our regression analysis showed that
additional increments of outlier payments over 8 percent (that is,
raising the outlier target to a larger percentage than 8 percent) would
reduce financial risk, but by successively smaller amounts. Since
outlier payments are included in budget neutrality calculations,
outlier payments would be funded by prospectively reducing the non-
outlier PPS payment rates by the proportion of projected outlier
payments to projected total PPS payments in the absence of outlier
payments; the higher the outlier target, the greater the (prospective)
reduction to the base payment rate in order to maintain budget
neutrality. Therefore, as another alternative to the proposed increase
to the fixed-loss amount for RY 2007, in the RY 2007 LTCH PPS proposed
rule (71 FR 4677 through 4678), we solicited comments on whether we
should revisit the regression analysis discussed above in this section
that was used to establish the existing 8 percent outlier target, using
the most recent available data to evaluate whether the current outlier
target of 8 percent should be adjusted, and therefore may result in
less of an increase in the fixed-loss amount for RY 2007.
As an alternative to proposing to raise the fixed-loss amount for
FY 2007, in the RY 2007 LTCH PPS proposed rule (71 FR 4677), we also
examined adjusting the marginal cost factor (that is, the percentage
that Medicare will pay of the estimated cost of a case that exceeds the
sum of the adjusted Federal prospective payment for the LTC-DRG and the
fixed-loss amount for LTCH PPS outlier cases as specified in Sec.
412.525(a)(3)), as a means of ensuring that estimated outlier payments
would be projected to equal 8 percent of estimated total LTCH PPS
payments. As we established in the August 30, 2002 final rule (67 FR
56022 through 56026), under the LTCH PPS HCO policy at Sec.
412.525(a)(3), the marginal cost factor is currently equal to 80
percent. A marginal cost factor equal to 80 percent means that, for an
outlier case, we pay the LTCH 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
adjusted Federal rate for the LTC-DRG PPS payment and the fixed-loss
amount).
Comment: Several commenters opposed any option that would allow CMS
to revisit the regression analysis that was used to establish the
existing 80 percent marginal cost factor and existing outlier target of
8 percent. The commenters explained that the LTCH PPS is still in its
early stages and further changes to the marginal cost factor or 8
percent outlier target would result in instability to the system. The
commenters cautioned against making any premature changes to the
factors affecting HCO payments to LTCHS, particularly the marginal cost
factor and outlier target established by regulation. Also, the
commenters agreed that keeping the marginal cost factor at 80 percent
and the outlier pool at 8 percent better identifies LTCH patients that
are truly unusually costly cases, and that the policy appropriately
addresses outlier cases that are significantly more expensive than non-
outlier cases.
One commenter expressed concern about the proposed significant
increase to the fixed-loss amount for RY 2007 and urged CMS to exempt
LTCHs that have high case mix levels (that is, over 1.5) from this
policy since they are more likely to have high cost cases. As an
alternative, the commenter suggested that we increase the marginal cost
factor to 90 percent or 100 percent instead of 80 percent.
Response: We agree with the commenters that based on the regression
analysis done for the implementation of the LTCH PPS (August 30, 2002;
68 FR 56022 through 56026), keeping the marginal cost factor at 80
percent and the outlier pool at 8 percent best identifies LTCH patients
that are truly unusually costly cases, and that such a policy
appropriately addresses LTCH HCO cases that are significantly more
expensive than non-outlier cases. Furthermore, as we stated in the
August 30, 2002 final rule (67 FR 56023 through 56027) that implemented
the LTCH PPS, the marginal cost factor is designed to ensure ``a
balance between the need to protect LTCHs financially, while
encouraging them to treat expensive patients and maintaining the
incentives of a PPS to improve the efficient delivery of care.''
Therefore, as supported by many commenters, we did not revisit the
regression analysis that was used to establish the existing 80 percent
marginal cost factor and existing outlier target of 8 percent for this
final rule. Accordingly, we are not making

[[Page 27835]]

any changes to the marginal cost factor or outlier target for RY 2007
in this final rule.
We do not believe that it is necessary or appropriate to exempt
LTCHs that have a high CMI from any changes to the HCO policy that
would be established for RY 2007. We disagree with the commenter that a
high case mix necessarily correlates to a higher likelihood of having
unusually HCO cases. A LTCH's case-mix is defined as its case weighted
average LTC-DRG relative weight for all its discharges in a given
period. The relative weight for each LTC-DRG represents the resources
needed by an average inpatient LTCH case in that LTC-DRG. For example,
cases in an LTC-DRG with a relative weight of 2.0 will, on average,
cost twice as much as cases in an LTC-DRG with a weight of 1.0, and
therefore, on average, are paid twice as much as well. Thus, a ``high''
case-mix level is an indication of the level of intensity of the types
of patients treated at a LTCH and not necessarily an indication of
treating a large number of unusually high cost cases. In fact, LTCHs
could have a relatively ``high'' CMI but have few or no HCO cases.
Therefore, we are not adopting the commenters' suggestion to exempt
LTCHs that have high case mix levels from any changes to the HCO policy
that would be established for RY 2007.
Furthermore, increasing the marginal cost factor to 90 percent or
100 percent instead of 80 percent for hospitals with high case-mix
would result in an increase in total estimated outlier payments
because, as we explained in the RY 2006 LTCH PPS final rule (70 FR
24195), we would pay a larger percentage of the estimated costs that
exceed the outlier threshold (the sum of the adjusted Federal rate for
the LTC-DRG and the fixed-loss amount). For example, if we were to
increase the marginal cost factor to 90 percent without raising the
fixed-loss amount or 8 percent outlier target, we would pay outlier
cases an additional 10 percent (90 percent minus 80 percent) of the
estimated costs that exceed the outlier threshold. This alternative
would result in estimated outlier payments which would exceed the
existing 8 percent outlier target required by the regulations.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4677),
keeping the marginal cost factor at the current level of 80 percent
while proposing to raise the fixed-loss amount to a level that will
generate an estimated aggregate 8 percent outlier payments would afford
more financial protection to LTCHs than proposing to lower the marginal
cost factor and retain the current fixed loss amount. A relatively
higher fixed-loss amount identifies fewer cases as HCO cases since the
amount that the estimated cost of the case must exceed before the case
qualifies as a HCO case is higher. However, this policy better
identifies LTCH patients that are truly unusually costly cases, which
is consistent with our intent of the LTCH HCO policy as stated when we
implemented the LTCH PPS in the August 30, 2002 final rule (67 FR
56025). As we discussed in that same final rule (67 FR 56023 through
56024), our analysis of payment-to-cost ratios for outlier cases showed
that a marginal cost factor of 80 percent appropriately addresses
outlier cases that are significantly more expensive than nonoutlier
cases, while simultaneously maintaining the integrity of the LTCH PPS.
Therefore, as supported by several commenters, we are not revising the
existing 80 percent marginal cost factor, and are not adopting the
commenter's recommendation to increase the marginal cost factor.
To summarize, consistent with the regression analysis that was used
to establish the existing marginal cost factor and existing outlier
target for RY 2007, the marginal cost factor will remain at 80 percent
and estimated outlier payments will remain at 8 percent. As we stated
in the RY 2007 LTCH PPS proposed rule (71 FR 4678), after revisiting
the issue and an analysis of the most recent complete available data,
due to the lag time in the availability of data, we now believe the
most appropriate time to revisit any changes in the outlier policy
(among other things), which would affect future LTCH PPS payment rates,
would be after the conclusion of the 5-year transition period when we
expect to have several years of data generated after the implementation
of the LTCH PPS.
Comment: One commenter believes that the estimated proposed
reduction to aggregate LTCH PPS payments that would result from the
proposed changes to the SSO policy causes a ``perverse'' consequence of
an increase to the fixed-loss amount, thus lowering reimbursement for
long-term, high cost cases. The commenter believes that LTCHs would
suffer a double penalty of lower payments due to the proposed SSO
policy and the proposed increase to the HCO fixed-loss amount. The
commenter added that CMS has not provided an explanation how LTCHs
would finance the added cost of these long stay, high cost cases (as a
result of the proposed increase to the outlier threshold).
One commenter noted that the proposed increase to the fixed-loss
amount would cause hospitals that do not have many SSO cases to be
inadequately reimbursed for their high cost cases. The commenter also
added that the proposed increase to the fixed-loss amount coupled with
the proposed zero percent increase to the Federal Rate would serve as a
disincentive for LTCHs to accept patients with high costs and who also
exceed the ALOS, thereby affecting patient access for these cases.
Another commenter stated that the proposed increase to the outlier
threshold failed to consider the acuity of patients and is based only
on mathematics. The commenter added that the proposed adjustment to the
fixed-loss amount would increase LTCHs' loss on these cases before they
qualify for an additional payment as HCOs. The commenter recommended
that if CMS believes an increase to the fixed-loss amount is warranted,
CMS should increase the fixed-loss amount the same amount as the annual
update factor.
Several other commenters also expressed concern about the
significant proposed increase to the fixed-loss amount and along with
other commenters requested that CMS review and reconsider the proposed
increase to the fixed-loss amount and consider establishing a lower
fixed loss amount (than the proposed fixed-loss amount) for RY 2007 in
the LTCH PPS final rule so that HCO cases receive appropriate payments.
Response: While we understand the commenters concerns about the
proposed increase to the fixed-loss amount, as we discussed in the RY
2007 LTCH PPS proposed rule (71 FR 4677), the proposed increase to the
fixed-loss amount had a direct correlation to our estimated decrease in
aggregate LTCH PPS payments for RY 2007 that we projected would result
primarily due to the proposed changes to the SSO policy.
Although some of the commenters did suggest different alternatives
to updating the fixed-loss amount, those suggestions are either not
consistent with maintaining estimated outlier payments at the projected
8 percent of total estimated payments or would require us to lower the
marginal cost factor in order to maintain estimated outlier payments at
8 percent of total estimated payments, which several commenters
opposed. As we discussed above and consistent with the recommendation
of several commenters, we did not revisit the regression analysis that
was used as a basis to

[[Page 27836]]

establish the existing marginal cost factor and existing 8 percent
outlier target, the marginal cost factor will remain at 80 percent and
the outlier target will remain at 8 percent for RY 2007. Maintaining
the fixed-loss amount at the current level, as we discussed in the RY
2007 LTCH PPS proposed rule (71 FR 4677) would result in HCO payments
that significantly exceed the current regulatory requirement that
estimated outlier payments are projected to equal 8 percent of
estimated total LTCH PPS payments. Based on our regression analysis, we
established the outlier target at 8 percent of estimated total LTCH PPS
payments to allow us to achieve a balance between the ``conflicting
considerations of the need to protect hospitals with costly cases,
while maintaining incentives to improve overall efficiency.'' That
regression analysis also showed that additional increments of outlier
payments over 8 percent (that is, raising the outlier target to a
larger percentage than 8 percent) would reduce financial risk, but by
successively smaller amounts. Outlier payments are budget neutral, and
therefore, outlier payments are funded by prospectively reducing the
non-outlier PPS payment rates by projected total outlier payments. The
higher the outlier target, the greater the (prospective) reduction to
the base payment that would need to be applied to the Federal rate in
order to maintain budget neutrality (August 30, 2002; 67 FR 56022
through 56024).
As we also discussed in the RY 2007 LTCH PPS proposed rule (71 FR
4678), under the LTCH PPS HCO policy at Sec. 412.525(a)(3), at a
marginal cost factor equal to 80 percent, Medicare pays the LTCH 80
percent of the difference between the estimated cost of the case and
the outlier threshold (the sum of the adjusted Federal rate for the
LTC-DRG PPS payment and the fixed-loss amount). The marginal cost
factor is designed to ensure ``a balance between the need to protect
LTCHs financially, while encouraging them to treat expensive patients
and maintaining the incentives of a prospective payment system to
improve the efficient delivery of care.'' Our regression analysis
showed that a marginal cost factor of 80 percent appropriately
addresses outlier cases that are significantly more expensive than
nonoutlier cases. Specifically, our analysis of payment-to-cost ratios
for outlier cases showed that a marginal cost factor of 80 percent
appropriately addresses outlier cases that are significantly more
expensive than nonoutlier cases, while simultaneously maintaining the
integrity of the LTCH PPS. Thus, the existing outlier policy (that is,
the 8 percent outlier target in conjunction with the 80 percent
marginal cost factor) derived from our regression analysis is designed
to maintain the balance between providing an incentive for LTCHs to
treat expensive patients and improving the efficient delivery of care.
(August 30, 2002; (67 FR 56022 through 56026)
As discussed in greater detail below, we continue to believe that
an increase to the fixed-loss amount is appropriate. The intent of the
HCO policy, as stated when we implemented the LTCH PPS, is to make an
additional payment to LTCHs for cases that truly have unusually high
costs. We disagree with the commenter who believes that LTCHs would be
penalized twice by lowering payments as a result of the changes to the
SSO policy and the increase to the HCO fixed-loss amount. Although the
changes to the SSO policy result in an estimated decrease in aggregate
LTCH PPS payments, which necessitates an increase to the HCO fixed-loss
amount, as discussed above, we are maintaining the existing 8 percent
outlier target. Therefore, although we are lowering aggregate estimated
outlier payments; they will continue to be projected to be equal to 8
percent of total estimate LTCH PPS payments. However, we acknowledge
that an increase to the fixed-loss amount will increase a LTCH's loss
on a specific case before it qualifies for an additional payment as
HCOs, as pointed out a few commenters; however, as we explained in the
RY 2007 LTCH PPS proposed rule (71 FR 4678), because a relatively
higher fixed-loss amount identifies fewer cases as HCO cases (since the
amount that the estimated cost of the case must exceed before the case
qualifies as a HCO case is higher), such a policy better identifies
LTCH patients that are truly unusually costly cases.
As discussed above, the intent of the HCO policy is to provide an
additional payment to LTCH cases that truly have unusually high costs.
We would remind the commenter who pointed out that we did not provide
an explanation of how LTCHs would finance HCO cases with an increase to
the fixed-loss amount that, if we would not increase the fixed-loss
amount, HCO payments would represent significantly more than 8 percent
of estimated total LTCH PPS payments. Thus, the cases that would
receive an additional HCO payment would no longer represent the cases
that truly have unusually high costs as compared to the universe of
``typical'' LTCH cases, and warrant an additional HCO payment.
Furthermore, as discussed above, HCO payments are budget neutral and
are funded by prospectively reducing the non-outlier PPS payment rates
by projected total outlier payments. The higher the outlier target, the
greater the (prospective) reduction to the base payment that would need
to be applied to the Federal rate in order to maintain budget
neutrality. Therefore, we continue to believe that it is appropriate to
increase the fixed-loss amount in order to maintain outlier payments at
the projected 8 percent of total estimated payments. Such a policy
continues to appropriately identify cases that are truly HCO cases
(that is, cases with an unusually high cost). Because maintaining an 8
percent outlier target necessitates an increase to the fixed-loss
amount and will appropriately identify unusually costly cases, we do
not believe that increasing the fixed-loss amount will result in a
disincentive for LTCHs to accept patients with high costs or exceed the
ALOS. In fact, for LTCHs, in general, a case that should receive a high
cost outlier payment is typically high cost because the patient has a
longer than ALOS. Moreover, the industry has stated in many of its
comments submitted on the RY 2007 LTCH PPS proposed rule that it has no
way of determining a LTCH's LOS upon admission. Therefore, we do not
believe that the increase to the fixed-loss amount established in this
final rule, which is significantly lower than the proposed RY 2007
fixed-loss amount (as discussed below), will result in these patients
not being treated at LTCHs. Furthermore, as we discuss in the impact
analysis presented in section XV. of this final rule, since based on
our margins analysis LTCH PPS payments appear to be more than adequate
to cover the costs of the efficient delivery of care to patients at
LTCHs, based on this margins analysis, we do not expect that an
increase to the fixed-loss amount will result in an adverse financial
impact on affected LTCHs nor will there be an effect on beneficiaries'
access to care. Also, for the reasons discussed above, we are not
adopting the commenter's suggestion to update the fixed-loss by the
most recent estimate of the LTCH PPS market basket since that would
result in estimated outlier payments in excess of 8 percent of
estimated total LTCH PPS payments. Because an increase in HCO payments
would result in an offset to the Federal rate, thereby lowering the
payment rate to all LTCH cases, such a result could underpay inlier
LTCH cases that typically consume the average resource of the
particular LTC-DRG.

[[Page 27837]]

In response to the commenter that believes that the estimated
proposed changes to the SSO policy causes a ``perverse'' consequence of
an increase to the fixed-loss amount, we believe that it is
inappropriate to maintain the current (that is, lower) fixed-loss
amount, which would increase aggregate estimated outlier payments
beyond 8 percent. The HCO policy was intended to identify only a
limited percentage of aggregate LTCH PPS payments for an additional
payment for unusually costly cases. As noted above, the LTCH PPS HCO
policy is budget neutral and, therefore, reduces payments to LTCHs for
SSO cases, many of which most likely do not require the full measure of
resources available in a hospital that has been established to treat
patients requiring long-stay hospital-level care (as discussed in
greater detail below in section V.A.1.a. of this preamble). As
explained in the RY 2007 LTCH PPS proposed rule (71 FR 4677), the
proposed increase to the fixed-loss amount was primarily due to the
projected decrease in aggregate LTCH PPS payments resulting from the
change in the SSO policy in order to maintain the requirement that
estimated outlier payments would equal only 8 percent of estimated
total LTCH PPS payments, as required under Sec. 412.525(a). If we
would not increase the fixed-loss amount, HCO payments would represent
significantly more than 8 percent of estimated total LTCH PPS payments.
Thus, the cases that would receive an additional HCO payment would no
longer represent the cases that truly have unusually high costs as
compared to the universe of ``typical'' LTCH cases, and warrant an
additional HCO payment. This is because, as we discussed in the August
30, 2002 final rule (67 FR 56022) when we implemented the LTCH PPS, our
regression analysis showed that an 8 percent outlier target would
achieve the balance of reducing financial risk for the treatment of
unusually costly cases, reducing incentives to underserve costly
beneficiaries, and improving overall fairness of the PPS. Furthermore,
we note that the 8 percent outlier target under the LTCH PPS is
significantly higher than the outlier target under the IPPS. The
outlier thresholds under the IPPS are set so that operating IPPS
outlier payments are projected to be only 5.1 percent of total
operating IPPS DRG payments (70 FR 47501).
Several commenters based their comments on the assumption that long
lengths of stay or high patient acuity (for example, case-mix) are
directly related to whether a case should receive a HCO payment. As we
explained above in section IV.C.3. of this preamble, we do not agree
that a case with a high case-mix necessarily correlates to a higher
likelihood of the case having an unusually high cost. A case with a
``high case-mix'' is a case that is grouped to a LTC-DRG with a
``high'' relative weight. The relative weight of the LTC-DRG represents
the resources needed by an average inpatient LTCH case in that LTC-DRG.
For example, cases in an LTC-DRG with a relative weight of 2.0 will, on
average, cost twice as much as cases in a LTC-DRG with a weight of 1.0,
and therefore, on average, are paid twice as much as well. Thus, a
``high'' case-mix for a particular case is an indication of the
relatively ``high'' level of intensity of that patient relative to LTCH
patients in other LTC-DRGs but not necessarily an indication of
unusually high cost for patients within that LTC-DRG. In fact, a case
could have a relatively ``high'' case-mix (that is, in a LTC-DRG with a
``high'' relative weight and therefore higher LTC-DRG payment) but have
the same costs or cost less than other cases in that same LTC-DRG,
which receive an appropriate payment based on the relative weight of
that LTC-DRG. Therefore, as discussed in greater detail above, we
believe that an increase to the fixed-loss amount is appropriate in
order to maintain the requirement that estimated outlier payments equal
8 percent of estimated total LTCH PPS payments, a level, which based on
our regression analysis, we believe most appropriately identifies
unusually high cost cases.
The policy change for SSO cases established in this final rule (as
discussed in section IV.A.1.a. of this preamble) is intended to revise
payments for SSO cases to an appropriate level. The fact that a
particular LTCH does not treat many SSO cases does not have any impact
on the effect of the change to the SSO policy on the HCO fixed-loss
amount. This is because, under our existing HCO policy, estimated
aggregate outlier payments are projected to equal 8 percent of
estimated aggregate LTCH PPS payments. As discussed in greater detail
above, the intent of the HCO policy is to provide an additional payment
to LTCH cases that truly have unusually high costs. We would remind
commenters who stated that an increase to the fixed-loss amount would
cause LTCHs that do not have many SSO cases to be inadequately
reimbursed for their HCO cases, that if we would not increase the
fixed-loss amount, cases that do not necessarily represent cases that
truly have unusually high costs as compared to the universe of
``typical'' LTCH cases would receive a HCO payment. Furthermore, if we
were to raise aggregate HCO payments in excess of the current 8 percent
outlier target, we would have to lower the Federal rate by the amount
that projected total outlier payments would exceed the current 8
percent outlier target. Such a prospective adjustment to the Federal
rate would reduce payments to ``typical'' LTCH cases, which based on
our regression analysis, could result in inadequate reimbursement to
those inlier cases. Therefore, we disagree with the commenters that an
increase to the fixed-loss amount would cause LTCHs that do not have
many SSO cases to be inadequately reimbursed for their HCO cases.
In conclusion, in 2003, when we became aware that IPPS and LTCH PPS
HCO (and SSO) policies were susceptible to payment vulnerabilities, we
proposed and ultimately finalized changes to the HCO (and SSO) policies
that were in the regulations at that time. Historically, it is our
practice that when upon review of an existing policy and we find that a
change in that policy is necessary, we establish appropriate changes
through the notice and comment rulemaking process. Consistent with this
historical practice, we reviewed the current HCO policy at Sec.
412.525(a), as discussed in greater detail above. As recommended by
many commenters, we have reviewed our methodology for determining the
fixed-loss amount for RY 2007 in this final rule to ensure that both
LTCH HCO cases and LTCH inlier cases receive appropriate payments
(since, as discussed above, outlier payments under the LTCH PPS are
budget neutral). Accordingly, based on this review, as we discussed in
the RY 2007 LTCH PPS proposed rule and as we discuss in greater detail
above in this section, we believe that an increase to the fixed-loss
amount for RY 2007 is appropriate. We are using the same methodology
that we proposed to use in the RY 2007 proposed rule to calculate the
fixed-loss amount for RY 2007 in this final rule (using updated data
and the policies established in this final rule, as described below) in
order to maintain estimated outlier payments at the projected 8 percent
of total estimated payments. However, as we discuss in greater detail
below in section V.A.1.a of this preamble, based on the comments we
received concerning the proposed changes to the SSO policy, we are
revising our proposed changes to the SSO policy that will be
established in this final rule. We

[[Page 27838]]

estimate that the final SSO policy established in this final rule will
result in a significantly smaller decrease in aggregate LTCH PPS
payments for RY 2007. Accordingly, although the fixed-loss amount for
RY 2007 is higher than current fixed-loss amount ($10,501), since under
the final SSO policy aggregate payments will no longer be reduced by
over 11 percent, but rather we estimate aggregate payments will only be
reduced by about 4 percent. Therefore, to maintain estimated outlier
payments at the projected 8 percent of total estimated payments, it is
not necessary for us to raise the fixed-loss amount as much as in the
RY 2007 LTCH PPS proposed rule. Consequently, the final fixed-loss
amount for RY 2007 (discussed in greater detail below) is $14,887,
which is considerably less than the proposed RY 2007 fixed-loss amount
of $18,489.
As stated above, we annually determine the fixed-loss amount so
that estimated outlier payments are projected to equal 8 percent of
total estimated LTCH PPS payments. In this final rule for the 2007 LTCH
PPS rate year, we used the December 2005 update of the FY 2005 MedPAR
claims data to determine a fixed-loss amount that would result in
outlier payments projected to be equal to 8 percent of total estimated
payments, based on the policies described in this final rule, because
these data are the most recent complete LTCH data available.
Furthermore, as noted previously, we determined the fixed-loss amount
based on the version of the GROUPER that would be in effect as of the
beginning of the 2007 LTCH PPS rate year (July 1, 2006), that is,
Version 23.0 of the GROUPER (70 FR 47324).
We also used CCRs from the December 2005 update of the PSF for
determining the fixed-loss amount for the 2007 LTCH PPS rate year as
they are currently the most recent complete available data. In
determining the fixed-loss amount for the 2007 LTCH PPS rate year, we
are using the current FY 2006 applicable IPPS combined operating and
capital CCR ceiling of 1.423 and Statewide average CCRs (as discussed
in the FY 2006 IPPS final rule (70 FR 47496) and established in
Transmittal 692 (September 30, 2005)) such that the current applicable
Statewide average CCR would be assigned if, among other things, a
LTCH's CCR exceeded the current ceiling (1.423). Our reason for using
the existing LTCH CCR ceiling and Statewide average CCRs to determine
the RY 2007 fixed-loss amount even though we have proposed to change
our methodology for determining the CCR ceiling and Statewide average
CCRs effective for discharges occurring on or after October 1, 2006 in
the FY 2007 IPPS proposed rule (71 FR 23996), is because we believe
that this methodology change would result in a minor change in the
numerical value of the LTCH CCR ceiling based on our analysis of the
data used to determine the proposed FY 2007 LTCH CCR ceiling, and
therefore, would have a negligible effect on the LTCHs' CCRs used to
determine the fixed-loss amount for the 2007 LTCH PPS rate year.
Moreover, we note that in determining the fixed-loss amount for the
2007 LTCH PPS rate year using the CCRs from the PSF, there was no need
for us to independently assign the applicable Statewide average CCR to
any LTCHs (as this may have already been done by the FI in the PSF in
accordance with our established policy). (Currently, the applicable FY
2006 IPPS Statewide averages can be found in Tables 8A and 8B of the FY
2006 IPPS final rule (70 FR 47672).)
Accordingly, based on the data and policies described in this final
rule, the fixed-loss amount will be $14,887 for the 2007 LTCH PPS rate
year. Thus, we will pay an outlier case 80 percent of the difference
between the estimated cost of the case and the outlier threshold (the
sum of the adjusted Federal LTCH payment for the LTC-DRG and the fixed-
loss amount of $14,887). We note that the fixed-loss amount for the
2007 LTCH PPS rate year is higher than the current fixed-loss amount of
$10,501. This change in the fixed-loss amount will primarily be due to
the projected decrease in LTCH PPS payments resulting from the change
in the SSO policy under Sec. 412.529 (discussed in greater detail in
section VI.A.1. of this preamble), and the changes to the LTC-DRG
relative weights for FY 2006 (as discussed in the FY 2006 IPPS final
rule (70 FR 47355)). Because we are projecting approximately a 4
percent decrease in estimated aggregate LTCH PPS payments in the 2007
LTCH PPS rate year (as discussed in section XV. of this final rule), we
believe that an increase in the fixed-loss amount is appropriate and
necessary to maintain the requirement that estimated outlier payments
would equal 8 percent of estimated total LTCH PPS payments, as required
under Sec. 412.525(a). As discussed in greater detail above, an
outlier target of 8 percent of estimated total LTCH PPS payments allows
us to achieve a balance between the ``conflicting considerations of the
need to protect hospitals with costly cases, while maintaining
incentives to improve overall efficiency'' (67 FR 56022 through 56024).
We note that the fixed-loss amount of $14,887 is substantially
lower than the proposed RY 2007 fixed-loss amount of $18,489 (71 FR
4676 through 4678). Furthermore, we note that the fixed-loss amount of
$14,887 is significantly lower than the FY 2003 fixed-loss amount of
$24,450 (67 FR 56023), the 2004 LTCH PPS rate year fixed-loss amount of
$19,590 (68 FR 34144), and the 2005 LTCH PPS rate year fixed-loss
amount of $17,864 (69 FR 25688), all of which were in effect during the
time period that we are currently estimating positive Medicare margins
(as discussed in greater detail in section V.C.3 of this preamble).
Thus, during the years when the fixed-loss amount was greater than the
$14,887 established for RY 2007 in this final rule, the majority of
LTCHs operated with positive Medicare margins, and therefore, we do not
expect that a fixed-loss amount of $14,887 will result in an adverse
impact of LTCHs in RY 2007. Moreover, we believe the fixed-loss amount
of $14,887 will appropriately identify unusually costly LTCH cases
while maintaining the integrity of the LTCH PPS. Thus, under the broad
authority of section 123(a)(1) of the BBRA and section 307(b)(1) of the
BIPA, we are establishing a fixed-loss amount of $14,887 based on the
best available LTCH data and the policies presented in this final rule
because, we believe an increase in the fixed-loss amount is appropriate
and necessary to maintain estimated outlier payments equal to 8 percent
of estimated total LTCH PPS payments, as required under Sec.
412.525(a).
d. Reconciliation of Outlier Payments Upon Cost Report Settlement
In the June 9, 2003 HCO final rule (68 FR 34508 through 34512), we
established a policy for LTCHs that provided that, effective for LTCH
PPS discharges occurring on or after August 8, 2003, any reconciliation
of outlier payments will be based upon the actual CCR computed from the
costs and charges incurred in the period during which the discharge
occurs. In that same final rule, we also established that, for
discharges occurring on or after August 8, 2003, at the time of any
reconciliation, outlier payments may be adjusted to account for the
time value of any underpayments or overpayments based upon a widely
available index to be established in advance by the Secretary and will
be applied from the midpoint of the cost reporting period to the date
of reconciliation. (We note that, in that same final rule (68 FR
34513), we

[[Page 27839]]

also established similar changes to the SSO policy under the LTCH PPS
at Sec. 412.529(c)(5)(ii).) These changes regarding the reconciliation
of outlier payments under the LTCH PPS were made in conjunction with
the changes regarding the determination of LTCH's CCRs that we
established under Sec. 412.525(a)(4) in the June 9, 2003 IPPS HCO
final rule, as discussed in greater detail in section V.D.3.b. of this
preamble. (We note that the instructions for implementing these
regulations under both the IPPS and the LTCH PPS are discussed in
further detail in Program Memorandum Transmittal A-03-058. Additional
information on the administration of the reconciliation process under
the IPPS is provided in CMS Program Transmittal 707 (October 12, 2005;
Change Request 3966). We note that irrespective of the changes to the
HCO and SSO policies presented in this final rule, we are currently
developing additional instructions on the administration of the
existing reconciliation process under the LTCH PPS that will be similar
to the IPPS reconciliation process.)
In the RY 2007 LTCH PPS proposed rule (71 FR 4678 through 4679),
for discharges occurring on or after October 1, 2006, we proposed to
codify into the LTCH PPS section of the regulations (subpart O of part
42 of the CFR) the provisions concerning the reconciliation of LTCH PPS
outlier payments, including editorial clarifications, that would more
precisely describe the application of those policies along with the
proposed changes to our methodology for determining the annual LTCH CCR
ceiling and applicable Statewide average CCRs under the LTCH PPS
(discussed previously in this final rule).
As discussed above in section VI.D.3.b. of this preamble, we
received a few specific comments concerning the proposed changes to the
policies governing the determination of LTCHs' CCRs. In light of those
comments, in the FY 2007 IPPS proposed rule (71 FR 24126 through
24132), we proposed the same changes to the policies governing the
determination of LTCHs' CCRs and the reconciliation of HCO and SSO
payments that we proposed in the RY 2007 LTCH PPS proposed rule.
Therefore, in this final rule, we are not finalizing any changes to the
policies governing the determination of LTCHs' CCRs or the
reconciliation of LTCH PPS HCO and SSO payments. We will respond
further to any comments received on the proposal concerning changes to
the policies governing the determination of LTCHs' CCRs and the
reconciliation of LTCH PPS HCO and SSO payments presented again in the
FY 2007 IPPS proposed rule (71 FR 24126 through 24135) in the FY 2007
IPPS final rule that will be published this summer.
4. Other Payment Adjustments
As indicated earlier, we have broad authority under section
123(a)(1) of the BBRA as amended by section 307(b) of the BIPA to
determine appropriate adjustments under the LTCH PPS, including whether
(and how) to provide for adjustments to reflect variations in the
necessary costs of treatment among LTCHs. Thus, in the August 30, 2002
final rule (67 FR 56014 through 56027), we discussed our extensive data
analysis and rationale for not implementing an adjustment for
geographic reclassification, rural location, treating a
disproportionate share of low-income patients (DSH), or indirect
medical education (IME) costs. In that same final rule, we stated that
we would collect data and reevaluate the appropriateness of these
adjustments in the future once more LTCH data become available after
the LTCH PPS is implemented.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4679
through 4680), because the LTCH PPS has only been implemented for
slightly over 3 years and there is a time lag in data availability,
sufficient new data has not been generated that would enable us to
conduct a comprehensive reevaluation of these payment adjustments. We
now believe that after the completion of the 5-year transition,
sufficient new data that will be generated while LTCHs are subject to
the LTCH PPS may be available for a comprehensive reevaluation of
payment adjustments such as geographic reclassification, rural
location, DSH, and IME. Nonetheless, we reviewed the limited data that
was available and find no evidence to support additional policy
changes. Therefore, in that proposed rule, we did not propose to make
any adjustments for geographic reclassification, rural location, DSH,
or IME. We also stated that we will continue to collect and interpret
new data as they become available in the future to determine if these
data support proposing any additional payment adjustments.
Specifically, as we discuss in greater detail in the RY 2007 LTCH PPS
proposed rule (71 FR 4679 through 4680), we proposed to revisit the
possible one-time prospective adjustment to the LTCH PPS rates at Sec.
412.523(d)(3), and after further analysis and evaluation we now believe
that it would be appropriate to wait for the conclusion of the 5-year
transition to 100 percent fully Federal payments under the LTCH PPS, to
maximize the availability of data that are reflective of LTCH behavior
in response to the implementation of the LTCH PPS to be used to conduct
a comprehensive evaluation of the potential payment adjustment policies
(such as rural location, DSH and IME) in conjunction with our
evaluation of the possibility of making a one-time prospective
adjustment to the LTCH PPS rates provided for at Sec. 412.523(d)(3).
We received no comments on any potential adjustments for geographic
reclassification, rural location, DSH, or IME. In addition, we received
no comments on our proposal to conduct a comprehensive reevaluation of
payment adjustments such as geographic reclassification, rural
location, DSH, and IME after the completion of the 5-year transition
once sufficient new data is generated while LTCHs are subject to the
LTCH PPS may be available. Therefore, in this final rule, we are not
making any adjustments for geographic reclassification, rural location,
DSH, or IME. Furthermore, we will conduct a comprehensive reevaluation
of payment adjustments such as geographic reclassification, rural
location, DSH, and IME after the completion of the 5-year transition
once we believe that sufficient new data that has been generated while
LTCHs are subject to the LTCH PPS is available.
5. Budget Neutrality Offset To Account for the Transition Methodology
Under Sec. 412.533, we implemented a 5-year transition, during
which a LTCH is paid an increasing percentage of the LTCH PPS Federal
prospective payment and a decreasing percentage of its payments based
on the reasonable cost-based payment methodology for each discharge.
Furthermore, we allow a LTCH (other than those defined as ``new'' under
Sec. 412.23(e)(4) to elect to be paid based on 100 percent of the
standard Federal rate in lieu of the blended methodology.
The standard Federal rate was determined as if all LTCHs will be
paid based on 100 percent of the standard Federal rate. As stated
earlier, we provide for a 5-year transition period that allows LTCHs to
receive payments based partially on the reasonable cost-based
methodology. In order to maintain budget neutrality for FY 2003 as
required by section 123(a)(1) of the BBRA during the 5-year transition
period, we reduce all LTCH Medicare payments (whether a LTCH elects
payment based on 100 percent of the Federal rate or whether a LTCH is
being paid under the transition blend

[[Page 27840]]

methodology) to account for the cost of the applicable transition
period methodology in a given LTCH PPS rate year.
Specifically, we reduce all LTCH Medicare payments during the 5-
year transition by a factor that is equal to 1 minus the ratio of the
estimated TEFRA reasonable cost-based payments that would be made if
the LTCH PPS was not implemented, to the projected total Medicare
program PPS payments (that is, payments made under the transition
methodology and the option to elect payment based on 100 percent of the
Federal rate).
In the RY 2006 LTCH PPS final rule (70 FR 24202), based on the best
available data at that time, we projected that approximately 98 percent
of LTCHs will be paid based on 100 percent of the standard Federal rate
rather than receive payment under the transition blend methodology for
the 2006 LTCH PPS rate year. Using the same methodology described in
the August 30, 2002 final rule (67 FR 56034), this projection, which
used updated data and inflation factors, was based on our estimate that
either: (1) A LTCH has already elected payment based on 100 percent of
the Federal rate prior to the start of the 2006 LTCH PPS rate year
(July 1, 2005); or (2) a LTCH would receive higher payments based on
100 percent of the 2006 LTCH PPS rate year standard Federal rate
compared to the payments it would receive under the transition blend
methodology. Similarly, we projected that the remaining 2 percent of
LTCHs will choose to be paid based on the applicable transition blend
methodology (as set forth under Sec. 412.533(a)) because they would
receive higher payments than if they were paid based on 100 percent of
the 2006 LTCH PPS rate year standard Federal rate.
Also in the RY 2006 LTCH PPS final rule (70 FR 24202), based on the
best available data at that time and policy revisions described in that
same rule, we projected that the full effect of the remaining 2 years
of the transition period (including the election option) would result
in a cost to the Medicare program of approximately $1.675 million.
Specifically, for the RY 2006 LTCH PPS, we estimated that the cost of
the transition would be approximately $1 million. Because this amount
is only a small percentage of total LTCH PPS payments for the 2006 LTCH
PPS rate year (estimated at over $3 billion), the formula that we use
to establish the budget neutrality offset to account for the additional
costs of the transition period resulted in a factor of zero percent.
Therefore, in that same final rule, we established a 0.0 percent
reduction (a budget neutrality offset of 1.000) to all LTCH payments in
the 2006 LTCH PPS rate year to account for the $1 million estimated
cost of the transition period methodology (including the option to
elect payment based on 100 percent of the Federal rate). We also
indicated that we would use a budget neutrality offset for each of the
remaining years of the transition period to account for the estimated
costs for the respective LTCH PPS rate years. In that same final rule,
we estimated that there would be a 0.0 percent budget neutrality offset
to LTCH PPS payments during the remaining years of the transition
period since, we estimated at that time that the additional cost to the
Medicare program resulting from the transition period methodology would
be so small that the budget neutrality factor determined under our
established methodology would round to zero.
In the RY 2007 LTCH PPS proposed rule (71 FR 4680 through 4681),
based on the updated data using the same methodology established in the
August 30, 2002 final rule (67 FR 56034), we projected that
approximately 97 percent of LTCHs would be paid based on 100 percent of
the proposed standard Federal rate rather than receive payment under
the transition blend methodology during the 2007 LTCH PPS rate year.
Similarly, we projected that the remaining 3 percent of LTCHs would
choose to be paid based on the transition blend methodology at Sec.
412.533 because those payments are estimated to be higher than if they
were paid based on 100 percent of the proposed standard Federal rate.
The applicable transition blend percentage is applicable for a LTCH's
entire cost reporting period beginning on or after October 1 (unless
the LTCH elects payment based on 100 percent of the Federal rate). We
also noted that this projection was slightly lower than the projection
that 98 percent of LTCHs would be paid based on 100 percent of the
proposed standard Federal rate rather than receive payment under the
transition blend methodology during the 2006 LTCH PPS rate year
discussed in the RY 2006 LTCH PPS final rule (70 FR 24202). The reason
for this slight decrease is due to how our established methodology
(described in this section) determines which LTCHs would be projected
to receive payments based on 100 percent of the Federal rate in a given
rate year. Specifically, under our established methodology, if a LTCH
has not already elected payment based on 100 percent of the Federal
rate then we evaluate whether a LTCH would receive higher payments
based on 100 percent of the proposed standard Federal rate or under the
applicable transition blend methodology based on the most recent
available data. Based on the best available data at that time, we
projected that a few LTCHs that had not already elected payment based
on 100 percent of the Federal rate would make such an election for RY
2006 because we projected that their payments based on 100 percent of
the Federal rate would exceed their payments under the applicable
transition blend. Therefore, those LTCHs were counted in the number of
LTCHS that would be paid based on 100 percent of the Federal rate in RY
2006. However, based on the most recent available data used for the RY
2007 LTCH PPS proposed rule, the data showed that those LTCHs have not
elected to receive payments based on 100 percent of the Federal rate
and are being paid under the applicable transition blend methodology.
Under our methodology for determining the percentage of LTCHs paid
based on 100 percent of the federal rate, based on the most recent
available data, in the RY 2007 LTCH PPS proposed rule, we projected
that for the RY 2007 LTCH PPS rate year, the applicable transition
blend methodology payments to those LTCHs would be greater than payment
based on 100 percent of the Federal rate, and therefore, those LTCHs
would not be included in the number of LTCHs that we estimate would be
paid based on 100 percent of the Federal rate in RY 2007.
Based on the policies presented in that proposed rule, we projected
a decrease in their estimated payments based on 100 percent of the
Federal rate in RY 2007 payment as compared to their estimated payments
based on 100 percent of the Federal rate in RY 2006 primarily as a
result of the proposed changes to the SSO policy and the proposed
increase in the outlier fixed-loss amount. Because we projected a
decrease in payments based on 100 percent of the Federal rate for these
LTCHs, the estimated RY 2007 payments based on the applicable
transition blend methodology are now higher than their estimated RY
2007 payments based on 100 percent of the Federal rate, and therefore,
we did not project that these LTCHs would elect payment based on 100
percent of the Federal rate for RY 2007. Thus, the slight decrease in
the our projection in the number of LTCHs that would be paid based on
100 percent of the Federal rate for the 2007 LTCH PPS rate year is
appropriate.
Based on the best available data and the proposed policies
described in the RY 2007 LTCH PPS proposed rule, we

[[Page 27841]]

projected that, in the absence of a transition budget neutrality
offset, the full effect of the final full year of the transition period
(including the election option) as compared to payments as if all LTCHs
would be paid based on 100 percent of the Federal rate would result in
a cost to the Medicare program of approximately 2.8 million.
Accordingly, using the methodology established in the August 30, 2002
LTCH PPS final rule (67 FR 56034), in the RY 2007 LTCH PPS proposed
rule (71 FR 4681), we proposed a 0.1 percent reduction (a budget
neutrality offset of 0.999) to all LTCHs' payments for discharges
occurring on or after July 1, 2006 and through June 30, 2007, to
account for the estimated cost of the transition period methodology
(including the option to elect payment based on 100 percent of the
Federal rate) of approximately $2.8 million for the 2007 LTCH PPS rate
year.
We received no comments on our proposed 0.1 percent reduction (a
budget neutrality offset of 0.999) to all LTCHs' payments for
discharges occurring on or after July 1, 2006 and through June 30,
2007, to account for the estimated cost of the transition period
methodology (including the option to elect payment based on 100 percent
of the Federal rate). In this final rule, based on the updated data
using the same methodology established in the August 30, 2002 final
rule (67 FR 56034), we are projecting that approximately 98 percent of
LTCHs will be paid based on 100 percent of the standard Federal rate
rather than receive payment under the transition blend methodology
during the 2007 LTCH PPS rate year. This projection, which used updated
data, as described above, is based on our estimate that either: (1) A
LTCH has already elected payment based on 100 percent of the Federal
rate prior to the beginning of the 2007 LTCH PPS rate year (July 1,
2006); or (2) a LTCH would receive higher payments based on 100 percent
of the standard Federal rate compared to the payments they would
receive under the transition blend methodology. Similarly, we project
that the remaining 2 percent of LTCHs will choose to be paid based on
the transition blend methodology at Sec. 412.533 because those
payments are estimated to be higher than if they were paid based on 100
percent of the standard Federal rate. The applicable transition blend
percentage is applicable for a LTCH's entire cost reporting period
beginning on or after October 1 (unless the LTCH elects payment based
on 100 percent of the Federal rate). We note that this projection is
slightly lower than the projection that 98 percent of LTCHs will be
paid based on 100 percent of the standard Federal rate rather than
receive payment under the transition blend methodology during the 2006
LTCH PPS rate year discussed in the RY 2006 LTCH PPS final rule (70 FR
24202). As discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4681)
and as reiterated above, we believe that the slight decrease in our
projection in the number of LTCHs that would be paid based on 100
percent of the Federal rate for the 2007 LTCH PPS rate year is
appropriate.
Based on the best available data and the policies described in this
final rule, we are projecting that in absence of a transition budget
neutrality offset, the full effect of the final full year of the
transition period (including the election option) as compared to
payments as if all LTCHs will be paid based on 100 percent of the
Federal rate would result in a negligible cost to the Medicare program.
Specifically, based on the most recent available data, we estimate that
the cost of the transition period methodology (including the option to
elect payment based on 100 percent of the Federal rate) will be less
than $1 million in RY 2007. As discussed above, to account for the cost
of the transition methodology in a given LTCH PPS rate year during the
5-year transition, we reduce all LTCH Medicare payments by a factor
that is equal to 1 minus the ratio of the estimated reasonable cost-
based payments that would have been made if the LTCH PPS had not been
implemented to the projected total Medicare program PPS payments (that
is, payments made under the transition methodology and the option to
elect payment based on 100 percent of the Federal rate). Because we
estimate that the additional cost of the transition period methodology
(including the option to elect payment based on 100 percent of the
Federal rate) will be less than $1 million for the 2007 LTCH PPS rate
year and because this amount is a small percentage of total LTCH PPS
payments (estimated at over $5 billion, as shown in Table 9), the
formula that we have used to establish the budget neutrality offset in
prior years results in a factor (as described above) that we reduce all
LTCH Medicare payments by to account for those additional costs of zero
(as a function of rounding). In addition, as discussed in the RY 2007
LTCH PPS proposed rule (71 FR 4681), we are no longer projecting a
small cost for the 2008 LTCH PPS rate year (July 1, 2007 through June
30, 2008) even though some LTCH's will have a cost reporting period for
the 5th year of the transition period which will be concluding in the
first 3 months of the 2008 LTCH PPS rate year because based on the most
available data, we are projecting that the vast majority of LTCHs will
have made the election to be paid based on 100 percent of the Federal
rate rather than the transition blend which will result in a negligible
cost to the Medicare program.)
Accordingly, using the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 56034), based on updated data and the
policies and rates presented in this final rule, we are implementing a
zero percent reduction (a budget neutrality offset of 1.000) to all
LTCHs' payments for discharges occurring on or after July 1, 2006 and
through June 30, 2007, to account for the estimated cost of the
transition period methodology (including the option to elect payment
based on 100 percent of the Federal rate) of less than $1 million for
the 2007 LTCH PPS rate year.
We note that this offset for the 2007 LTCH PPS rate year is the
same as the current zero percent transition period budget neutrality
offset established in the RY 2006 LTCH PPS final rule (70 FR 24202). We
also note that the transition period budget neutrality offset for the
2007 LTCH PPS rate year established in this final rule is slightly
lower than the proposed 0.999 percent budget neutrality offset proposed
in for the RY 2007 LTCH PPS proposed rule (71 FR 4681). This is because
we are now projecting that a few more LTCHs will elect payment based on
100 percent of the Federal rate than we projected when we determined
the transition period budget neutrality offset for the 2007 LTCH PPS
rate year based on the most recent available data in the RY 2007 LTCH
PPS proposed rule because we are no longer projecting as large of a
decrease in aggregate LTCH PPS payments for RY 2007 as a result of the
policies established in this final rule.
6. One-time Prospective Adjustment to the Standard Federal Rate
As we discussed in the August 30, 2002 final rule (67 FR 56036),
consistent with the statutory requirement for budget neutrality in
section 123(a)(1) of the BBRA, we intended that estimated aggregate
payments under the LTCH PPS for FY 2003 equal the estimated aggregate
payments that would be made if the LTCH PPS were not implemented. Our
methodology for estimating payments for purposes of the budget
neutrality calculations uses the best available data at the time and
necessarily reflects assumptions. As the LTCH PPS progresses, we are

[[Page 27842]]

monitoring payment data and will evaluate the ultimate accuracy of the
assumptions used in the budget neutrality calculations (for example,
inflation factors, intensity of services provided, or behavioral
response to the implementation of the LTCH PPS) described in the August
30, 2002 LTCH PPS final rule (67 FR 56027 through 56037). To the extent
these assumptions significantly differ from actual experience, the
aggregate amount of actual payments may turn out to be significantly
higher or lower than the estimates on which the budget neutrality
calculations were based.
Section 123(a)(1) of the BBRA as amended by section 307(b) of the
BIPA provides broad authority to the Secretary in developing the LTCH
PPS, including the authority for appropriate adjustments. Under this
broad authority, as implemented in the existing regulations at Sec.
412.523(d)(3), we have provided for the possibility of making a one-
time prospective adjustment to the LTCH PPS rates by October 1, 2006,
so that the effect of any significant difference between actual
payments and estimated payments for the first year of the LTCH PPS
would not be perpetuated in the LTCH PPS rates for future years. (As
discussed in greater detail below, as we proposed, we are extending the
deadline for making this adjustment to July 1, 2008, in this final
rule.)
In the RY 2006 LTCH PPS final rule (70 FR 24203), based on the best
available data at that time, we estimated that total Medicare program
payments for LTCH services over the next 5 LTCH PPS rate years would be
$3.32 billion for the 2006 LTCH PPS rate year; $3.38 billion for the
2007 LTCH PPS rate year; $3.48 billion for the 2008 LTCH PPS rate year;
$3.63 billion for the 2009 LTCH PPS rate year; and $3.79 billion for
the 2010 LTCH PPS rate year.
In the RY 2007 LTCH PPS proposed rule (71 FR 4681), consistent with
the methodology established in the August 30, 2002 final rule (67 FR
56036), based on the most recent available data at that time, we
estimate that total Medicare program payments for LTCH services for the
next 5 LTCH PPS rate years would be $5.27 billion for the 2007 LTCH PPS
rate year; $5.44 billion for the 2008 LTCH PPS rate year; $5.64 billion
for the 2009 LTCH PPS rate year; $5.88 billion for the 2010 LTCH PPS
rate year; and $6.15 billion for the 2011 LTCH PPS rate year. We also
noted that those 5-year spending estimates were significantly higher
that the 5-year spending estimates presented in the RY 2006 LTCH PPS
final rule (70 FR 24203). We explained that this is primarily due to an
adjustment by our Office of the Actuary (OACT) to account for the
significant increase in the expected number of LTCH discharges based on
the most recent available LTCH discharge data.
In this final rule, consistent with the methodology established in
the August 30, 2002 final rule (67 FR 56036), based on the most recent
available data, we estimate that total Medicare program payments for
LTCH services for the next 5 LTCH PPS rate years would be as shown in
Table 9.

Table 9.--Rate Year Estimate Total Medicare Program Payments for LTCH
Services
------------------------------------------------------------------------
Estimated
LTCH PPS rate year payments ($ in
billions)
------------------------------------------------------------------------
2007.................................................... $5.27
2008.................................................... 5.43
2009.................................................... 5.63
2010.................................................... 5.86
2011.................................................... 6.13
------------------------------------------------------------------------

In accordance with the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 56037), these estimates are based on
the most recent available data, including the projection that 98
percent of LTCHs would elect to be paid based on 100 percent of the
2007 LTCH PPS rate year standard Federal rate rather than the
applicable transition blend and an estimated increase in the number of
discharges from LTCHs. These estimates are also based on our estimate
of LTCH PPS rate year payments to LTCHs using OACT's most recent
estimate of the excluded hospital with capital market basket (currently
used under the LTCH PPS) of 3.4 percent for the 2007 LTCH PPS rate
year, 3.1 percent for the 2008 LTCH PPS rate year, 2.8 percent for the
2009 LTCH PPS rate year, 2.3 percent for the 2010 LTCH PPS rate year,
and 2.7 percent for the 2011 LTCH PPS rate year. (We note that,
although we are establishing a zero percent update to the LTCH PPS
Federal rate for RY 2007 (as discussed in section V.C.3. of this final
rule) OACT develops its spending projections based on existing policy
and therefore, changes that have not yet been implemented are not
reflected in the spending projections shown in this section.) We also
considered OACT's most recent projections of changes in Medicare
beneficiary enrollment that there would be a change in Medicare fee-
for-service beneficiary enrollment of -0.3 percent in the 2007 LTCH PPS
rate year, 0.1 percent in the 2008 LTCH PPS rate year, 0.2 percent in
the 2009 LTCH PPS rate year, -0.3 percent in the 2010 LTCH PPS rate
year, and -0.2 percent in the 2011 LTCH PPS rate year. (We note that,
based on the most recent available data, OACT is projecting a slight
decrease in Medicare fee-for-service Part A enrollment for the 2007,
2009 and 2010 LTCH PPS rate years, in part, because they are projecting
an increase in Medicare managed care enrollment as a result of the
implementation of several provisions of the MMA of 2003.)
As we discussed in the RY 2006 LTCH PPS final rule (70 FR 24204),
because the LTCH PPS was only recently implemented, sufficient new data
has not been generated that would enable us to conduct a comprehensive
reevaluation of our budget neutrality calculations. Accordingly, we did
not make a one-time adjustment under Sec. 412.523(d)(3). As discussed
in the RY 2007 LTCH PPS proposed rule (71 FR 4682), at this time, we
still do not have sufficient new data to enable us to conduct a
comprehensive reevaluation of our budget neutrality calculations.
Therefore, in that proposed rule, we did not propose to make a one-time
adjustment under Sec. 412.523(d)(3) so that the effect of any
significant difference between actual payments and estimated payments
for the first year of the LTCH PPS is not perpetuated in the PPS rates
for future years. However, in that same proposed rule, we stated that
we will continue to collect and interpret new data as the data become
available in the future to determine if this adjustment should be
proposed.
Additionally, as also discussed in the RY 2007 LTCH PPS proposed
rule (71 FR 4682 through 4684), we believe that it would be appropriate
to postpone the requirement established in Sec. 412.523(d)(3) due to
the time lag in the availability of Medicare data upon which this
adjustment would be based. We explained that we believe that only
through a thorough analysis of the most comprehensive and accurate data
from the first year of the implementation of the LTCH PPS for FY 2003
(including settled and fully audited cost reports) would we be able to
reliably determine whether the one-time prospective adjustment to the
standard Federal rate, which if issued would have an impact on all
future payments under the LTCH PPS, should be proposed. Therefore, we
proposed to revise Sec. 412.523(d)(3) by postponing the October 1,
2006 deadline to July 1, 2008.
Comment: One commenter believes that CMS should be consistent and
conduct the one-time adjustment in the same manner and for the same
reasons as it has done for all PPSs. Specifically, the commenter states
that both the LTCH PPS and the IRF PPS are affected

[[Page 27843]]

by changes in coding practices resulting from the implementation of a
PPS; however, under the IRF PPS, CMS made a ``one-time'' adjustment
when it reduced the standard payment conversion factor (that is, the
IRF PPS base rate) by 1.9 percent in FY 2006 to account for changes in
coding practices that did not reflect actual changes in patient
severity based on an analysis performed by the Rand corporation. The
commenter also believes it is inequitable to treat LTCHs differently
than IRFs when accounting for payment increases due to changes in
coding by potentially penalizing LTCHs twice for changes, once by
providing no update and a second time, by extending the regulatory
timeframe to establish the one-time adjustment to the Federal rate,
since the proposed adjustment to account for case-mix increase that is
not real in determining the update for RY 2007 would be a permanent
adjustment that de facto reduces the rate of the increase of the
Federal rate. Therefore, the commenter stated that CMS should eliminate
the possible one-time adjustment as it would have already accomplished
the purposes of that adjustment by proposing a zero percent update to
the RY 2007 Federal rate.
In referring to the transition period budget neutrality adjustment,
one commenter states that CMS already employs a means to ensure budget
neutrality, and therefore, the extension of the deadline for the one-
time budget neutrality adjustment is unnecessary. Another commenter
stated that CMS should use the proposed zero percent update as the one-
time adjustment and not extend the deadline, while another commenter
stated that CMS should pursue a one-time adjustment independent of the
Federal rate update for RY 2007.
Some commenters contend that for CMS to propose to extend the
deadline for the possible one-time budget neutrality adjustment would
constitute ``an abuse of its statutory authority.'' These commenters
assert that by our own admission (citing the RY 2007 LTCH PPS proposed
rule (71 FR 4682)), we are already in possession of the data that is
needed to determine if the possible one-time budget neutrality
adjustment under Sec. 412.523(d)(3) is necessary. The commenters
question why if FY 2003 cost report data which is needed to determine
if the possible one-time budget neutrality adjustment is currently
available, we believe it is necessary to obtain more ``reliable'' cost
data for FY 2004 before deciding to impose the one-time (budget
neutrality) adjustment. These commenters believe that postponing the
deadline would allow CMS to ``wait until `any significant difference'
arises in the aggregate to trigger the [possibly] one-time [budget
neutrality] adjustment.'' Consequently, they recommended that CMS
withdraw its proposal to extend the deadline for exercising a one-time
prospective adjustment. CMS would therefore only have until October 1,
2006 to exercise the one-time adjustment, as originally contemplated.
Response: The commenter believes that we are being inconsistent
with our application of ``one-time'' adjustments under the IRF PPS and
the LTCH PPS since, in the FY 2006 IRF PPS final rule (70 FR 47880), we
applied a ``one-time'' adjustment of 1.9 percent to the standard
payment amount for FY 2006 to account for changes in provider coding
practices that did not reflect real changes in case mix, and in
determining the update to the LTCH PPS Federal rate for RY 2007, we
proposed to make an adjustment to account for changes in coding
practices that do not reflect real changes in case mix in addition to
the existing ``one-time'' budget neutrality adjustment at Sec.
412.523(d)(3). However, we believe that the commenter has mistakenly
assumed that the adjustment to the most recent estimate of the market
basket to account for changes in coding practices in determining the
proposed Federal rate for RY 2007 is the same as the possible one-time
prospective adjustment provided for under Sec. 412.523(d)(3). As we
stated above in this section, when we established the regulations at
Sec. 412.523(d)(3), we provided for the possibility of making a one-
time prospective adjustment to the LTCH PPS rates so that the effect of
any significant difference between actual payments and estimated
payments for the first year of the LTCH PPS would not be perpetuated in
the LTCH PPS rates for future years (August 30, 2002; 67 FR 56027
through 56037). The purpose of this one-time adjustment is to ensure
that total estimated payments under the LTCH PPS in FY 2003 were
``budget neutral'' to what total estimated payments would have been if
the LTCH PPS were not implemented in FY 2003 by correcting for possible
significant errors in the calculation of the LTCH PPS FY 2003 standard
Federal rate. However, as we discuss in greater detail above in section
IV.C.3. of this preamble, the proposed adjustment to the LTCH PPS
market basket to account for changes in coding practices for the
determination of the Federal rate for RY 2007 update is a separate
adjustment to the Federal rate. While the one-time adjustment would
ensure that any errors in past estimates would not be perpetuated in
the LTCH PPS rates for future years, the proposed adjustment to account
for coding practices in the proposed update to the Federal rate for RY
2007 is intended to adjust the Federal rate for increased payments made
in FY 2004 that resulted from an increase in CMI due to improved
documentation and coding rather than an increase in patient severity.
Therefore, because the intended purposes of the adjustments are
different, as explained above, we do not believe that we are acting in
an inconsistent manner by making two separate adjustments under the
LTCH PPS (one adjustment to account for changes in coding practices in
determining the RY 2007 Federal rate and the other under Sec.
412.523(d)(3) to ensure budget neutrality in the first year of the LTCH
PPS (FY 2003)). We also note that, although we made a ``one-time''
adjustment under the IRF PPS to account for the effect of coding or
classification changes that do not reflect real changes in case mix
that resulted in increased Medicare payments to IRFs for the time
period between 1999 and 2002, the statute does not preclude CMS from
making additional adjustments under the IRF PPS in the future based on
evidence of coding or classification changes that do not reflect real
changes in case mix, to the extent that such changes affect aggregate
IRF PPS payments.
In addition, we do not believe that the adjustment to the market
basket estimate to account for changes in coding practices in
determining the update to the LTCH PPS Federal rate for RY 2007
necessarily replaces the need for a possible one-time budget neutrality
adjustment. However, as we noted in the RY 2007 LTCH PPS proposed rule
and as we reiterated above, the zero percent update to the Federal rate
for the 2007 LTCH PPS rate year may make the one-time prospective
adjustment to the LTCH PPS Federal rate provided for under Sec.
412.523(d)(3) unnecessary. Specifically, to the extent our review of FY
2003 data (which will include, but is not limited to changes in case-
mix) shows that, if by coincidence after updating the Federal rate by
zero percent in RY 2007, the Federal rate is appropriate, it is
possible that any further adjustment to the Federal rate may be
unnecessary. Furthermore, as discussed in greater detail below, since
the intended purpose of the one-time adjustment at Sec. 412.523(d)(3)
is to ensure that total estimated payments under the LTCH PPS in FY
2003 were ``budget neutral'' to what total estimated payments would
have been if the LTCH

[[Page 27844]]

PPS were not implemented in FY 2003, we believe it is incumbent upon us
to extend the deadline for this adjustment to ensure that we are in
possession of the most reliable cost report data indicating the actual
LTCH costs during FY 2003. Therefore, as discussed above, because the
intended purposes of the adjustment to the market basket to account for
changes in coding practices in determining the RY 2007 Federal rate and
the possible ``one-time'' adjustment under Sec. 421.523(d)(3) are
different, we disagree with the commenter that LTCHs will be penalized
twice by establishing a zero percent update for RY 2007 and extending
the deadline for determining the possible ``one-time'' adjustment under
Sec. 412.523(d)(3).
We also disagree with the commenters' contention that our proposal
to extend the deadline for the possible one-time budget neutrality
adjustment would constitute ``an abuse of its statutory authority.''
Rather, as we stated in the RY 2007 LTCH PPS proposed rule (71 FR
4681)), section 123(a)(1) of the BBRA, required that the system
``maintain budget neutrality'' for FY 2003. Moreover, section 123(a)(1)
of the BBRA as amended by section 307(b)(1) of the BIPA confers broad
authority on the Secretary to make appropriate adjustments under the
LTCH PPS. Consequently, we believe we would be fulfilling our statutory
mandate to ensure that FY 2003 payments under the LTCH PPS are in fact
budget neutral. Under budget neutrality, estimated aggregate payments
under the LTCH prospective payment system would equal the estimated
aggregate payments that would be made if the LTCH PPS would not be
implemented for FY 2003. The methodology for determining the LTCH PPS
standard Federal rate for FY 2003 that would ``maintain budget
neutrality'' is described in considerable detail in the August 30, 2002
final rule (67 FR 56027 through 56037). As we discussed in that same
final rule, our methodology for estimating payments for the purposes of
budget neutrality calculations used the best available data and
necessarily reflects assumptions in estimating aggregate payments that
would be made if the LTCH PPS was not implemented. We also stated our
intentions to monitor LTCH PPS payment data to evaluate the ultimate
accuracy of the assumptions used in the budget neutrality calculations
(for example, inflation factors, intensity of services provided, or
behavioral response to the implementation of the LTCH PPS). To the
extent that those assumptions significantly differ from actual
experience, the aggregate amount of actual payments during FY 2003 may
actually be significantly higher or lower than the estimates upon which
the budget neutrality calculations were based. Therefore, in
implementing the LTCH PPS, the Secretary exercised his broad authority
in establishing the LTCH PPS and provided for the possibility of a one-
time prospective adjustment to the LTCH PPS rates at Sec.
412.523(d)(3). The purpose of that provision was to prevent any
significant difference between actual payments and estimated payments
for the first year of the LTCH PPS, when we established the budget
neutral Federal rate, as required by the statute (discussed
previously), from being perpetuated in the PPS rates for future years.
It is accurate that currently the most recent complete year of LTCH
cost report data is FY 2003 (the data which is needed to determine if
the possible one-time budget neutrality adjustment is necessary).
However, the vast majority of the FY 2003 LTCH cost report data is
currently only ``as submitted'' by the LTCH and has not yet been
reviewed before being settled (or audited) by the FI. LTCH cost report
data from FY 2004 is also currently available; however, it is only
partially complete (that is, not all LTCHs' FY 2004 cost reports are
available). As we explained in the RY 2007 LTCH PPS proposed rule (71
FR 4684), because of the lag time typically involved in the entire cost
report settlement process, currently we are not able to utilize the
most accurate and complete data reflecting the actual costs incurred by
LTCHs for cost reporting periods beginning during FY 2003 because the
majority of LTCHs' FY 2003 cost reports are not as yet settled.
Specifically, as noted in the RY 2007 LTCH PPS proposed rule, there are
many LTCHs with cost reporting periods from September 1 through August
30, which first became subject to the LTCH PPS on September 1, 2003.
Given the lag time required for typical cost report settlement
involving submission, desk review, and in some cases an audit, which
can take approximately 2 additional years to complete (and we expect to
audit a number of LTCH cost reports for the purpose of this analysis),
we do not believe that the October 1, 2006 deadline established at
Sec. 412.523(d)(3) is any longer reasonable or realistic. In fact, we
believe that it would be inappropriate to develop and propose such an
adjustment that would be effective by October 1, 2006, as required by
the current regulations, to the Federal rate under Sec. 412.523(d)(3)
when we do not believe that we are in possession of the most reliable
cost report data indicating the actual costs of LTCHs during the year
in which we established the LTCH PPS (FY 2003). As we explained in the
RY 2007 LTCH PPS proposed rule (71 FR 4684), we believe that we will be
in possession of the most reliable FY 2003 cost report data reflecting
the actual costs of LTCHs during the year in which we established the
standard Federal payment rate for LTCHs with an August 2004 fiscal year
ending date by July 2007. Therefore, any proposed adjustment could then
be proposed, and if ultimately finalized, implemented on July 1, 2008.
Furthermore, we believe that having additional years of data that were
generated under the LTCH PPS (such as FY 2004 LTCH cost report data,
and possibly partially complete FY 2005 LTCH cost report data) may be
useful in assisting us in evaluating the settled and audited FY 2003
LTCH cost report data. Subsequent years data may be helpful in
determining if the possible one-time budget neutrality adjustment under
Sec. 412.523(d)(3) is necessary, as it may help us to identify
aberrant or erroneous FY 2003 data.
In the RY 2007 LTCH PPS proposed rule (71 FR 4685), we emphasized
the distinction between the sufficiency of the data utilized for the
analysis that supported the proposed update to the Federal rate for RY
2007 and the proposal to postpone the possible one-time prospective
adjustment to the Federal rate at Sec. 412.523(d)(3). Specifically,
the RY 2007 update to the Federal rate is based on the best data from
FY 2004, including case-mix data, which is derived from the MedPAR
files, and data analysis coordinated by OACT, ORDI, and assisted by 3M.
The LTCH claims data used to make this case-mix adjustment are current
and accurate and are not dependent upon the cost report settlement
process. However, the data review that we believe necessary for the
comprehensive analysis of the accuracy of the Federal payment rate
under Sec. 412.523(d)(3), which would be applied prospectively (and
therefore has the potential to affect all future LTCH PPS Federal
rates), is dependent on settled Medicare cost report data that we
expect will be available by July 2007. We believe that only through a
thorough analysis of the most comprehensive and accurate data from the
first year of the implementation of the LTCH PPS for FY 2003 (including
settled and fully audited cost reports) will we be able to reliably
determine whether a one-time prospective adjustment to the Federal

[[Page 27845]]

rate should be proposed. Therefore, we believe that postponing the
deadline for this possible one-time prospective adjustment until July
1, 2008 will allow us to have the best available data from the first
year of the LTCH PPS (FY 2003) upon which to base such an adjustment.
We disagree with the commenters that suggest that the transition
period budget neutrality adjustment should make it unnecessary to
postpone the deadline for making the possible one-time budget
neutrality adjustment under Sec. 412.523(d)(3). As discussed above in
section V.D.5. of this preamble, during each year of the 5-year
transition period, we reduce all LTCH Medicare payments (whether an
LTCH elects payment based on 100 percent of the Federal rate or whether
an LTCH is being paid under the transition blend methodology) to
account for the cost of the applicable transition period methodology in
a given LTCH PPS rate year. We established this adjustment because the
standard Federal rate was determined as if all LTCHs would be paid
based on 100 percent of the standard Federal rate. However, since we
provided for a 5-year transition period that allows LTCHs to choose to
receive blended payments based partially on the reasonable cost-based
methodology, it was necessary to make a budget neutrality adjustment
that accounts for the additional costs to the Medicare program that
result from the increased payments to LTCHs that choose to receive
blended payments. As reiterated above, we separately provided for the
possibility of making a one-time prospective adjustment to the LTCH PPS
rates at Sec. 412.523(d)(3) so that the effect of any significant
difference between actual payments and estimated payments for the first
year of the LTCH PPS would not be perpetuated in the LTCH PPS rates for
future years. Therefore, as explained above, because the intended
purposes of the adjustments are vastly different, we do not believe
that the transition period budget neutrality adjustment can replace the
need for a possible one-time budget neutrality adjustment.
To summarize, we believe that postponing the deadline for this
possible one-time prospective adjustment until July 1, 2008 will allow
us to have the best available data from the first year of the LTCH PPS
(FY 2003) upon which to base an adjustment. Therefore, in this final
rule, we are postponing the deadline for the possible one-time budget
neutrality adjustment under Sec. 412.523(d)(3). Accordingly, in this
final rule, under broad authority conferred upon the Secretary by
section 123 of the BBRA as amended by section 307(b) of the BIPA to
include appropriate adjustments in the development of the LTCH PPS, we
are revising Sec. 412.523(d)(3) to specify that the Secretary will
review payments under the LTCH PPS and may make a one-time prospective
adjustment to the LTCH PPS rate on or before July 1, 2008, so that the
effect of any significant difference between actual payments and
estimated payments for the first year of the LTCH PPS is not
perpetuated in the LTCH PPS rates for future years. Finally, as we
discussed in the RY 2007 LTCH PPS proposed rule and as stated above in
section IV.D.4. of this preamble, we note that we intend to revisit our
earlier determinations as to the appropriateness of other payment
adjustments (for example, DSH, or IME) at the same time that we would
establish the possible one-time prospective adjustment by July 1, 2008.

VI. Other Policy Changes for the 2007 LTCH PPS Rate Year

A. Adjustments for Special Cases

1. Adjustment for Short-Stay Outlier (SSO) Cases
a. Changes to the Method for Determining the Payment Amount for SSO
Cases
In the August 30, 2002 rule for the LTCH PPS, under Sec. 412.529,
we established a special payment policy for SSO cases, that is cases
with a LOS of less than or equal to five-sixths of the geometric ALOS
for each LTC-DRG. When we established the SSO policy, we explained that
``[a] short-stay outlier case may occur when a beneficiary receives
less than the full course of treatment at the LTCH before being
discharged. These patients may be discharged to another site of care or
they may be discharged and not readmitted because they no longer
require treatment. Furthermore, patients may expire early in their LTCH
stay'' (67 FR 55995). Also in the August 30, 2002 final rule, we stated
that when we first described the policy, in the March 27, 2002 proposed
rule, ``* * * we based the proposed policy on the belief that many of
these patients could have been treated more appropriately in an acute
hospital subject to the acute care hospital inpatient prospective
payment system'' (67 FR 55995). Therefore, under the LTCH PPS, we
implemented a special payment adjustment for SSO cases. Under the
existing SSO policy at Sec. 412.529, for LTCH PPS discharges with a
LOS of up to and including five-sixths (\5/6\) of the geometric ALOS
for the LTC-DRG, in general, we adjust the per discharge payment under
the LTCH PPS by the lesser of 120 percent of the estimated cost of the
case, 120 percent of the LTC-DRG specific per diem amount multiplied by
the LOS of that discharge, or the full LTC-DRG payment.
As noted previously, generally LTCHs are defined by statute as
having an ALOS of greater than 25 days. We stated that we believe that
the SSO payment adjustment results in more appropriate payments, since
these cases most likely would not receive a full course of an LTCH-
level of treatment in such a short period of time and the full LTC-DRG
payment may not always be appropriate. Payment-to-cost ratios simulated
for LTCHs, for the cases described above, indicated that if LTCHs
received a full LTC-DRG payment for those cases, they would be
significantly ``overpaid'' for the resources they have actually
expended in treating those patients.
In establishing the SSO policy, we also believed that providing a
reduced payment for SSO cases would discourage hospitals from admitting
patients for whom they would not provide complete treatment to maximize
Medicare payments. We also believed that the policy did not severely
penalize providers that, in good faith, had admitted a patient and
provided some services before realizing that the beneficiary could
receive more appropriate treatment at another site of care. As we
explained in the FY 2003 LTCH PPS final rule, establishing an SSO
payment for these types of cases addressed the incentives inherent in a
discharge-based prospective payment system for LTCHs for treating
patients with a short LOS (67 FR 55995 through 56000).
When we established the SSO adjustment at the outset of the LTCH
PPS, we noted in the August 30, 2002 final rule that the regression
analyses and simulations based on prior years' LTCH claims data
generated under the former reasonable cost-based (TEFRA) system, upon
which we based many of our policy determinations regarding the design
of the LTCH PPS for FY 2003, indicated that nearly half of LTCH cases
would be paid on an adjusted per discharge amount based on the SSO
payment policy established at Sec. 412.529 once the LTCH PPS was
implemented. However, as we stated in that rule, we believe that ``* *
* this data analysis does not necessarily predict the future behavior
of LTCHs operating under a prospective payment system. The data used in
the analysis are a product or reflection of the practice patterns of
hospitals that operate under the mechanisms of the TEFRA payment
system, which are different from the principles of a prospective
payment

[[Page 27846]]

system. However, these are the best data available upon which we can
simulate LTCH behavior under the new LTCH prospective payment system.
We believe that once the LTCH prospective payment system is
implemented, the practice patterns of LTCHs will change. We anticipate
that hospitals will alter their admission, treatment, and discharge
patterns. Thus, we fully expect that an increasing majority of cases
will be reimbursed on an unadjusted per discharge basis during the
transition from reasonable cost-based reimbursement to prospective
payments'' (67 FR 55999).
As we noted in the August 30, 2003 final rule, ``* * *[B]ased on
our experience in implementing other Medicare prospective payment
systems, we fully expect that as new data are received, we may revisit
policy decisions described in this final rule. Furthermore, our Office
of Research, Development, and Information (ORDI)] will be tracking the
impact of the prospective payments on LTCHs, other hospitals that treat
long-term care patients, and other post-acute care providers, which
will enable us to determine whether additional policy changes are
warranted'' (67 FR 55999).
A change in the SSO policy was published in the RY 2004 LTCH PPS
final rule (68 FR 34148), following a reexamination of the impact of
the SSO policy on subclause (II) LTCHs authorized by section
1886(d)(1)(B)(iv)(II) of the Act which we implemented at Sec.
412.23(e)(2)(ii). At that time, we revised certain aspects of the SSO
policy to meet the specific needs of this type of LTCH. This provision
provided an exception to the general definition of an LTCH set forth in
section 1886(d)(1)(B)(iv)(I) of the Act, implemented at Sec.
412.23(e)(2)(i), specifying that to qualify as an LTCH, a hospital must
have first been excluded as an LTCH in calendar year (CY) 1986, have an
inpatient ALOS of greater than 20 days, and demonstrate that 80 percent
or more of its annual Medicare inpatient discharges in the 12-month
cost reporting period ending in FY 1997 have a principal diagnosis that
reflects a finding of neoplastic disease (62 FR 46016 and 46026). In
the RY 2004 final rule, we particularly noted that the Congress
recognized the existence and importance of a distinct category of LTCHs
that might not otherwise warrant exclusion from the acute care
inpatient PPS under subclause (I) but which nonetheless fulfilled a
unique and vital role in serving a particular subset of Medicare
patients. Consistent with existing policies that differentiated
subclause (II) LTCHs from other LTCHs, we determined that it was
reasonable for us to consider whether or not a policy that was designed
for LTCHs designated under subclause (I) could reasonably and equitably
be applied to a subclause (II) LTCH without some measure of adjustment.
Therefore, in the RY 2004 LTCH PPS final rule, we provided an
additional adjustment to the SSO policy for subclause (II) LTCHs.
Specifically, in the RY 2004 LTCH PPS final rule (68 FR 34147 through
34148), we made a temporary adjustment to the applicable percentages
used in the SSO payment formula at Sec. 412.529(c) (applied to the
cost of the SSO case or the per diem LTC-DRG payment) used to calculate
Medicare payments under the SSO policy. Specifically, at existing Sec.
412.529(c)(4) for LTCHs designated under section 1886(d)(1)(B)(iv)(II)
of the Act and Sec. 412.23(e)(2)(ii), we established a temporary
adjustment that will sunset upon such hospitals' first cost reporting
period beginning on or after October 1, 2006. Under existing policy,
Medicare payment to a subclause (I) LTCH for SSOs is the least of the
following: 120 percent of the LTC-DRG per diem amount multiplied by the
LOS of the discharge; 120 percent of the estimated cost of the case; or
the full LTC-DRG. Under this temporary adjustment at Sec.
412.529(c)(4) for a subclause (II) LTCH, we substitute the following
percentages for the 120 percent figure used for subclause (I) hospitals
in the SSO payment formula at Sec. 412.529(c). For discharges,
occurring on or after July 1, 2003, for cost reporting periods
beginning during the first year of the 5-year LTCH PPS transition
period for subclause (II) LTCHs, the SSO percentage is 195 percent. For
discharges occurring in the cost reporting periods beginning during the
second year of the transition period, the applicable SSO percentage is
193 percent; for discharges occurring in cost reporting periods
beginning during the third year of the transition period, the
applicable percentage is 165 percent; for discharges occurring in the
cost reporting period beginning during the fourth year of the
transition, the percentage is 136 percent; and for discharges occurring
in cost reporting periods beginning during the fifth year of the 5-year
transition (and for discharges occurring in all future cost reporting
periods), the SSO percentage for ``subclause (II)'' LTCHs would also be
120 percent, that is, the same as it is currently for all other LTCHs
under the LTCH PPS.
As we continue to monitor the SSO policy, as we discussed in the RY
2007 LTCH PPS proposed rule (71 FR 4636), an analysis of LTCH claims
data from the FY 2004 MedPAR files (using version 23.0 of the GROUPER),
reveals that approximately 37 percent of LTCH discharges continue to be
paid under the provisions of the existing SSO policy at Sec. 412.529.
As noted previously, at the outset of the LTCH PPS, the data upon which
we based our system indicated that 48.4 percent of patients admitted to
LTCHs fell into the category of SSOs, a percentage that we believed to
be inappropriately high, given that the LTCHs are excluded by statute
from the IPPS since it is understood that LTCHs are established to care
for patients requiring long-term hospital-level care. We believed our
existing policy accounted for the fact that an LTCH in good faith could
admit a patient and provide some services before realizing that the
beneficiary would receive more appropriate treatment at another site of
care. But in establishing the SSO policy, which provided a reduced
payment for cases with a LOS that is up to and including five-sixths of
the geometric ALOS for the LTC-DRG, it was our intent to not encourage
hospitals to admit patients for whom a long-term hospital stay was not
appropriate. We were concerned that these inappropriate admissions
could be made to maximize payment (67 FR 55995). As noted previously,
when this policy was established, at the start of the LTCH PPS for cost
reporting periods beginning on or after October 1, 2002, nearly one-
half (48.4 percent) of all LTCH cases would have been paid as SSOs.
However, we believed that the percentage of SSOs would drop
significantly from 48.4 percent once the LTCH PPS was implemented. As
we stated in the RY 2007 LTCH PPS proposed rule, we expressed our
concern that the existing SSO payment adjustment at Sec. 412.529,
which generally will pay a per discharge amount based upon the lesser
of 120 percent of the specific LTC-DRG per diem amount (multiplied by
the LOS); 120 percent of the estimated costs of the case; or the full
LTC-DRG payment as specified in existing Sec. 412.529(c)(1), may
unintentionally have provided a financial incentive for LTCHs to admit
patients more appropriately treated in other settings.
In the August 30, 2002 final rule, when we first presented our
rationale for establishing the SSO policy, we noted that since LTCHs
are defined by statute as generally having an ALOS greater than 25
days, we had proposed payment adjustments to make appropriate payment
for cases that may have been transferred from an acute

[[Page 27847]]

hospital prematurely'' (67 FR 55999). We continue to have these
concerns, and we believe that our data indicate that after more than 3
years of the LTCH PPS, a policy reexamination is both necessary and
appropriate when so many SSO cases have short lengths of stay. In fact,
a large percentage of SSOs have a LOS of 14 days or less. To address
these concerns, in the RY 2007 LTCH PPS proposed rule, consistent with
the Secretary's broad authority ``to provide for appropriate
adjustments to the long-term hospital payment system * * *''
established under section 123 of the BBRA as amended by section
307(b)(1) of BIPA, we proposed to reduce the current adjustment at
existing Sec. 412.529(c)(1)(ii), which is based on 120 percent of the
estimated costs of the case, to 100 percent of the estimated costs of
the case for discharges occurring on or after July 1, 2006. We believe
that by reducing the Medicare payment to the LTCH for a specific SSO
case so that it would not exceed the estimated costs incurred for that
case, we would be removing what we believe could be a financial
incentive that the current policy has established to treat short stay
cases in LTCHs. We are not changing the payment option of 120 percent
of the per diem for a specific LTC-DRG multiplied by the LOS for that
case because of the specific calculations upon which we based this
aspect of the SSO policy adjustment. As described in detail in the FY
2003 final rule LTCH PPS, when we first established the SSO policy, we
found that five-sixths of the geometric ALOS would be the SSO threshold
where the full LTC-DRG payment would be made at 120 percent. That is,
by adjusting the per discharge payment by paying at 120 percent of the
per diem LTC-DRG payment, once a stay reaches five-sixths of the
geometric ALOS for the LTC-DRG, the full LTC-DRG payment will have been
made. We continue to believe that this specific methodology, which
results in a gradual increase in payment as the LOS increases without
producing a payment ``cliff'' at any one point, provides a reasonable
payment option under the SSO policy. (67 FR 55997, August 30, 2002)
As discussed in the RY 2007 LTCH PPS proposed rule, we believe that
this proposed revision to the SSO payment methodology reducing the 120
percent of cost option to 100 percent of costs would further discourage
inappropriate admissions of these patients to LTCHs because we will be
removing the financial incentive to admit cases that do not typically
belong in LTCHs but would be more appropriately treated in another
setting (for example, an inpatient acute care hospital). Further, since
the vast majority of LTCH patients are admitted directly from IPPS
acute-care hospitals, a fact verified by our patient data files
(National Claims History Files), a recent MedPAC Report (June 2003, p.
79), and by research done by the Urban Institute at the outset of the
LTCH PPS and by RTI, as we discussed in the RY 2007 LTCH PPS proposed
rule, we believe that the admission of short-stay patients at LTCHs may
indicate premature and even inappropriate discharges from the referring
acute care hospitals. For example, if an acute care hospital patient
required additional inpatient services, it would usually be most
appropriate for the acute care hospital to continue to treat the
patient rather than discharging and admitting the patient to a LTCH for
a short-stay episode.
To remove what may be an inappropriate financial incentive for a
LTCH to admit a short-stay case, as well as, to discourage LTCHs from
behaving like acute care hospitals by having a significant number of
cases with lengths of stay more typical of acute care hospitals and
also to discourage LTCHs from admitting patients that could be
premature discharges from acute care hospitals, in the RY 2007 LTCH PPS
proposed rule, we also proposed to add a fourth payment method to the
three alternatives under Sec. 412.529(c) for SSO cases. Specifically,
we proposed to revise Sec. 412.529 to provide that for discharges from
LTCHs described in Sec. 412.23(e)(2)(i) occurring on or after July 1,
2006, payment for a SSO case would be the least of the following: 120
percent of the per diem amount for a specific LTC-DRG multiplied by the
LOS of the discharge; 100 percent of the estimated costs of the case
(which we proposed to change from the existing 120 percent of estimated
costs); the full LTCH PPS payment for the LTC-DRG; or a payment amount
under the LTCH PPS that is comparable to the payment that would
otherwise be paid under the IPPS.
We explained that this additional component to the SSO payment
formula would be particularly appropriate because it reflects our
concern that generally, LTCHs that admit SSO patients with lengths of
stay more typical of an acute care hospital may be, in fact, behaving
like acute care hospitals. Therefore, we proposed to include an
alternative payment method under the LTCH PPS SSO adjustment that could
result in a LTCH PPS payment to the LTCH for a SSO stay that would be
comparable to what Medicare would pay to an acute care hospital for the
same DRG. Furthermore, since over 80 percent of all LTCH patients (FY
2003 MedPAR) are admitted from acute care hospitals to LTCHs, of which
many become SSOs, an acute care hospital's discharge of a patient who
is still in need of acute-level care may indicate a premature and
inappropriate discharge from the acute care hospital and an
inappropriate admission to the LTCH, which would result in a second,
Medicare payment for the case of the patient to the LTCH for what is
actually one episode of care. We established a similar payment
adjustment under the LTCH PPS at Sec. 412.534 for a LTCH HwH or LTCH
satellite for which greater than 25 percent (or the appropriate
specified percentage) of its patients were admitted from a host
hospital in the FY 2005 IPPS final rule (69 FR 49191 through 49214).
Under that policy, unless the patient reached high cost outlier (HCO)
status at the acute care hospital prior to discharge, Medicare payments
to the LTCH HwH or satellite for those cases in excess of the
applicable threshold are based upon the lesser of a payment otherwise
payable under the LTCH PPS or a LTCH PPS amount equivalent to what
would have been paid for such a discharge under the IPPS. This payment
adjustment reflected our belief that if patient-shifting between a host
hospital and its co-located LTCH exceeded a specific threshold, the
onsite LTCH was functioning as a de facto unit of the acute care
hospital, a configuration not permitted by section 1886(d)(1)(B) of the
Act, which authorizes rehabilitation and psychiatric units but not LTCH
units of acute care hospitals. We reasoned that if the patient was in
effect, being treated in a ``unit'' of the acute care hospital, it was
reasonable to revise the payment methodology and take this into
account. For LTCH HwH or satellite discharges in excess of the 25
percent (or appropriate percentage) threshold, therefore, as specified
in Sec. 412.534, Medicare will make a payment based upon the lesser of
the LTCH PPS payment otherwise payable under subpart O and an amount
under this subpart that is equivalent to an amount that would be paid
under the IPPS.
As we discussed in the RY 2007 LTCH PPS proposed rule, we believe
that adapting the underlying premise of the payment adjustment at Sec.
412.534 to a new payment adjustment method under the SSO policy would
be particularly appropriate, since we were concerned (and our data
seemed to confirm) that LTCHs may be admitting patients that would
otherwise be treated in acute care hospitals, as evidenced by lengths
of stay at LTCHs more in

[[Page 27848]]

keeping with an acute care hospital stay, than the considerably longer
lengths of stay characteristic of LTCHs. We believed that under this
proposed additional payment method under the LTCH PPS for SSO patients,
the LTCH could receive a Medicare LTCH PPS payment comparable to that
which would be paid under the IPPS.
As we also discussed in the RY 2007 LTCH PPS proposed rule, we are
very concerned that acute care hospitals may be shifting some of their
potentially longer stay patients to LTCHs, resulting in a high
incidence of SSOs at LTCHs. This pattern may indicate a premature
discharge from the acute care hospital (where less than a full course
of treatment was delivered) and an unnecessary admission to the LTCH.
The payment adjustment at Sec. 412.534, based on the 25 percent (or
applicable percentage) threshold, focused on inappropriate patient
movement between co-located providers. However, we do not believe that
co-location is a prerequisite to inappropriate patient-shifting between
an acute care hospital and a LTCH.
As indicated previously, section 123 of the BBRA, as amended by
section 307(b)(1) of the BIPA confers broad discretionary authority on
the Secretary to implement a prospective payment system for LTCHs,
including providing for appropriate adjustments to the payment system.
This broad authority gives the Secretary great flexibility to fashion a
LTCH PPS based on both original policies as well as concepts borrowed
from other payments systems that are adapted, where appropriate, to the
LTCH context. In the instant case, our finalized SSO policy utilizes,
in large part, principles from the IPPS payment methodology and builds
upon those concepts to create a LTCH PPS payment adjustment that
results in an appropriate payment for those inpatient stays that we
believe are not characteristic of LTCHs but could be more appropriately
treated in another setting.
Consequently, in the discussion that follows, as we explained in
the RY 2007 LTCH PPS proposed rule, for the sake of clarity, we use
phrases such as ``IPPS DRG relative weights,'' and the ``IPPS labor-
related share,'' in describing features of the IPPS that we would use
in calculating LTCH PPS payments under this new alternative adjustment.
We want to emphasize, however, that such a payment would not be an IPPS
payment but rather, a payment under the LTCH PPS that is generally
comparable to a payment under the IPPS payment methodology. Therefore,
for Medicare payments for SSO cases under the LTCH PPS we proposed to
add a fourth option that would be ``an amount under subpart O that is
comparable to an amount that otherwise would be paid under the IPPS''
that would be calculated based on the sum of the applicable operating
and capital IPPS rates in effect at the time of the discharge from the
LTCH, as established in the applicable IPPS final rule published
annually in the Federal Register. This would be necessary since, under
the IPPS, there are separate Medicare rates for operating (subpart D of
part 412) and capital (subpart M of part 412) costs to acute care
hospitals; while, under the LTCH PPS, there is a single payment for the
operating and capital costs of the inpatient hospital services provided
to LTCH Medicare patients. We also proposed to add that ``an amount
under subpart O that is comparable to an amount that otherwise would be
paid under the IPPS'' would be calculated including the applicable
differences in resource use (that is, IPPS DRG relative weights),
differences in area wage levels (that is, wage index), a COLA for
hospitals located in Alaska and Hawaii, the treatment of a
disproportionate share of low income patients (DSH), if applicable, and
an adjustment for indirect medical education (IME), if applicable. (We
would emphasize that, under this proposed policy, Medicare payments,
payable under subpart O, would be ``comparable'' to what would
otherwise be paid under the IPPS, rather than ``equal'' to an IPPS
payment because, as we explained, there are specific features of the
IPPS that do not directly translate into the LTCH PPS, so there would
be no way to assure that LTCH payments are ``equal'' to an amount that
would be paid under the IPPS. In using the word ``comparable,'' to
describe this payment alternative to the existing SSO policy, we
intended to make clear that such payments would be calculated by
applying IPPS principles to achieve a close approximation of payments
that would be made under the IPPS, recognizing the fact that not all
components of the IPPS can be carried out precisely in the LTCH PPS
context.)
Specifically, in the RY 2007 LTCH PPS proposed rule, we proposed
that we would calculate an amount payable under subpart O comparable to
what would otherwise be paid under the IPPS for the costs of inpatient
operating services which would be based on the standardized amount
determined under Sec. 412.64(c), adjusted by the applicable DRG
weighting factors determined under Sec. 412.60. This amount would be
further adjusted to account for different area wage levels by
geographic area using the applicable IPPS labor-related share, based on
the CBSA where the LTCH is physically located as set forth at Sec.
412.525(c) and using the IPPS wage index for non-reclassified hospitals
published in the annual IPPS final rule. (In the RY 2006 LTCH PPS final
rule (70 FR 24200), we discuss the inapplicability of geographic
reclassification procedures for LTCHs.) For LTCHs located in Alaska and
Hawaii, this amount would also be adjusted by the applicable proposed
COLA factor used under the IPPS published annually in the IPPS final
rule. (Currently these same COLA factors are used under both the IPPS
and the LTCH PPS.)
Additionally, this SSO proposed revised payment adjustment
alternative (that is, an amount comparable to what would be paid under
the IPPS for the case) could also include a DSH adjustment (see Sec.
412.106), if applicable. Under the proposed revision to the LTCH PPS
SSO payment adjustment in the case of a LTCH that is a teaching
hospital, we explained that we would determine the IME payment
adjustment for the LTCH by imputing a limit on the number of full-time
equivalent (FTE) residents that may be counted for IME (IME cap) based
on the LTCH's direct GME cap as set forth at Sec. 413.79(c)(2) (which
would already have been established for a LTCH which had residency
programs). Thus, we proposed calculating an IME payment for the LTCH
that is comparable to the IPPS payment formula set forth at Sec.
412.105. Under the IPPS IME payment regulations at Sec. 412.105 limits
were established on the number of FTE residents a hospital is permitted
to count for IME payments based on the number of residents reported by
the hospital 1996 cost report. The use of a proxy for the IME cap would
be necessary because it would not be appropriate to apply the IPPS IME
rules literally in the context of this LTCH PPS payment adjustment.
Thus, we proposed calculating an IME payment for a LTCH that is a
teaching hospital that is comparable to the IPPS payment formula set
forth at Sec. 412.105. The use of a proxy for the IME cap would be
necessary because it would not be appropriate to apply the IPPS IME
rules literally in the context of this LTCH PPS payment adjustment.
This IME FTE resident cap under the IPPS would not translate
appropriately to a LTCH. Since a LTCH was not paid IME in 1996 it would
not have reported any FTE residents for IME purposes on its 1996 cost
report. Therefore, we proposed using the LTCH's direct GME

[[Page 27849]]

resident cap for the purpose of calculating the proposed payment
adjustment alternative for SSOs. We believed this proposal was
reasonable since it would cap the number of FTE residents that could be
counted for IME payment purposes of calculating a comparable IME
payment based on the best available data on residency programs at LTCHs
(which could be computed from direct GME data for LTCHs that had
residency programs). Using an imputed IME FTE resident cap based on GME
data would enable us to factor an adjustment for indirect costs of
residency programs into a Medicare payment under the LTCH PPS for those
SSO cases where the least of the payment alternatives is an amount
under the LTCH PPS comparable to what would be paid under the IPPS.
Both a DSH adjustment and an IME adjustment, as necessary, could be
computed from data already collected on the LTCH's cost report.
Therefore, we proposed to refer to the LTCH's direct GME resident
cap for the purpose of calculating the proposed payment adjustment
alternative for SSOs. We believed this proposal was reasonable since it
would cap the number of FTE residents that could be counted for
purposes of calculating a comparable IME payment based on the best
available data on residency programs at LTCHs (which could be computed
from direct GME data for LTCHs that had residency programs).
As we discussed in the RY 2007 LTCH PPS proposed rule, under this
proposed LTCH PPS payment adjustment, an amount payable under subpart O
comparable to what would be paid under the IPPS would also include
payment for inpatient capital-related costs, based on the proposed
revision to the LTCH PPS SSO payment adjustment. In the case of a LTCH
that is a teaching hospital, we explained that we would determine the
comparable IME payment adjustment for the LTCH by imputing a limit on
the number of full-time equivalent (FTE) residents that may be counted
for IME (IME cap) based on the LTCH's direct GME cap as set forth at
Sec. 413.79(c)(2) (which would already have been established for a
LTCH which had residency programs) and the capital Federal rate at
Sec. 412.308(c), which would be adjusted by the applicable IPPS DRG
weighting factors at Sec. 412.60, as set forth at Sec. 412.312(b). We
proposed that this amount would be further adjusted by the applicable
geographic adjustment factors set forth at Sec. 412.316, including
wage index (based on the CBSA where a LTCH is physically located and
derived from the IPPS wage index for non-reclassified hospitals as
published in the annual IPPS final rule), and large urban location, if
applicable.
We note that we proposed that ``a LTCH PPS payment amount
comparable to what would be paid under the IPPS'' would not include
additional payments for extraordinarily high cost cases under the IPPS
outlier policy (Sec. 412.80(a)(3)). Under existing LTCH PPS policy, a
SSO case that meets the criteria for a LTCH PPS HCO payment at Sec.
412.525(a)(1) (that is, if the estimated costs of the case exceed the
adjusted LTC-DRG SSO payment plus the fixed loss amount) would receive
an additional payment under the LTCH PPS HCO policy at Sec. 412.525(a)
(67 FR 56026, August 30, 2002). For purposes of HCOs under the proposed
SSO policy, we would continue to use a fixed-loss amount calculated
under Sec. 412.525(a), and not a fixed-loss amount based on Sec.
412.80(a). Medicare would pay the LTCH 80 percent of the costs of the
case that exceed the sum of the applicable option of the least of the
four proposed payment options, described above, and the fixed-loss
amount determined under Sec. 412.525(a). As we discussed in the RY
2007 LTCH PPS proposed rule, we used the term ``comparable'' in the
proposed fourth payment alternative so that the public will realize
that this payment alternative is not exactly the same as the one that
is similarly worded in Sec. 412.534(c)(2), (d)(1), and (e)(1),
discussed in section VI.B. of the RY 2007 proposed rule.
Therefore, in the RY 2007 proposed rule, we proposed two changes to
the existing SSO payment provision. First, we proposed to decrease the
percentage of costs in the current SSO payment formula (that is, 120
percent of the costs) to 100 percent of costs. Secondly, we proposed to
add a fourth option that Medicare would pay an LTCH PPS payment amount
comparable to the amount that would have otherwise been paid under the
IPPS for such a case, if that amount is lower than the other three
payment alternatives.
As we discussed in the RY 2007 LTCH PPS proposed rule, we
established special provisions for the SSO policy for subclause (II)
LTCHs in the RY 2004 LTCH PPS final rule (68 FR 34147). We proposed to
exempt subclause (II) LTCHs from the proposed additional revisions to
the SSO policy discussed above until the 5th year of the phase-in of
the LTCH PPS for such a LTCH (that is, for discharges occurring during
cost reporting periods beginning on or after October 1, 2006). This
proposed approach is consistent with our existing policy as it applies
to subclause (II) LTCHs in that these LTCHs do not become subject to
the specific SSO percentages established for subclause (I) LTCHs until
cost reporting periods beginning on or after October 1, 2006.
Therefore, since the percentages applied under the proposed SSO policy
for subclause (II) LTCHs would not be reduced to 120 percent until the
fifth year of the transition, the proposed reduction from 120 percent
of the estimated costs of the case to 100 percent of the estimated
costs would not apply to a subclause (II) LTCH until that time, nor
would the additional proposed alternative, of an amount payable under
Subpart O comparable to the amount that would otherwise be paid under
the IPPS, apply to discharges from a subclause (II) LTCH until such a
LTCH's cost reporting period beginning on or after October 1, 2006.
Therefore, under the proposed policy discussed in the RY 2007 LTCH PPS
proposed rule, SSO discharges at a subclause (II) LTCH that had a
January 1 through December 31 cost reporting period, for example, would
be subject to the proposed changes to the SSO provision (including the
proposed reduction to 100 percent of costs and the proposed addition of
the fourth option of ``a payment comparable to what would otherwise
have been paid under the IPPS'') for discharges occurring on or after
the start of its 5th year of the transition on January 1, 2007.
The proposal to exempt subclause (II) LTCHs from the proposed
revisions to the SSO policy that would be effective beginning in RY
2007 until cost reporting periods beginning on or after October 1, 2006
was consistent with our understanding of Congressional intent in
establishing this special category of LTCHs in section 4417(b) of the
BBA. The Congress provided an exception to the general definition of
LTCHs under subclause (I) and subclause (II). In the RY 2004 LTCH PPS
final rule (68 FR 34148), we evaluated the SSO policy for subclause
(II) LTCHs, and we noted that the unique Congressional mandate set
forth in section 1886(d)(1)(B)(iv)(II) of the Act circumscribes such a
LTCHs' admission policies to the extent that it is being identified as
a LTCH to provide a particular type of service (for which the ALOS is
greater than 20 days) to a particular population (at least 80 percent
have a principal diagnosis of neoplastic disease). We stated that we
believed that a LTCH in this category might not be able to readily
address the type of patients and the costs it incurs for those patients
as would LTCHs described under subclause (I). We believed that it was
necessary to adjust the original short stay policy for

[[Page 27850]]

subclause (II) LTCHs during the 5-year transition period, so that a
LTCH of this type could continue to serve its community, as intended by
the Congress (68 FR 34148).
As we discussed in the RY 2007 LTCH PPS proposed rule, we proposed
that hospitals that qualify as subclause (II) LTCHs would become
subject to the proposed changes to the SSO provision, when a subclause
(II) LTCH would become fully subject to the general SSO policy at Sec.
412.529, which will be for discharges occurring in the first cost
reporting period beginning on or after October 1, 2006.
We received many comments on our proposed revisions to the SSO
policy representing the views of trade associations representing LTCHs,
both for-profit and not-for-profit LTCH groups, medical corporations
that include LTCHs, state medical societies, a Chamber of Commerce,
legislators, physicians and other hospital staff, and several
interested citizens. In general, commenters did not support our
proposed policy and the payment reductions to LTCHS that would result
if it was finalized.
Comment: Several commenters supported CMS's goal of analyzing the
role of LTCHs as one of several treatment settings among post-acute
providers for Medicare beneficiaries. However, they urged us not to
finalize the portion of the proposed SSO policy that would include the
alternative payment option for payment comparable to the IPPS payment
amount. These commenters believe that finalizing this policy would
result in drastic payment reductions and consequential losses to the
LTCHs. One commenter noted that our proposed policies had made it
necessary to answer the following question: ``Where is the proper place
for LTCHs along the continuum of care for Medicare beneficiaries and
how is this place substituted for in areas where there are no or few
LTCHs.'' The commenter further stated that this was ``a proper question
to ask for a prudent purchaser of care'' but urged us to arrive at a
``clinically-based'' answer to this question.
Response: We appreciate the commenters' recognition of the very
serious issues regarding LTCHs underlying our proposed policy
revisions. The commenter is also correct in questioning the role of
LTCHs in the continuum of beneficiary care. As a provider category,
LTCHs were created by section 1886(d)(1)(B)(iv)(I) of the Act and
defined by the statute: a LTCH is ``a hospital which has an average
inpatient LOS (as determined by the Secretary) of greater than 25
days.'' (Subclause (II) LTCHs, discussed below in these responses,
which were established under the BBA of 1997, function under highly
specific requirements.) As a ``prudent purchaser of care,'' we believe
that we have the mandate to appropriately pay for the hospital-level
services provided to Medicare beneficiaries. The RTI study, that is
discussed in section XII.B. of the preamble to this final rule,
represents a highly significant step in the direction of evaluating the
clinical role for LTCHs. In addition to the RTI study, there is
considerable attention being focused by CMS on issues of substitution
of services among provider types, and the potential for the development
of a uniform assessment tool across post-acute providers. As RTI
evaluates the feasibility of identifying clinically-based criteria for
LTCH patients, it continues to concern us that patients with the same
general medical profile as these LTCH patients are also being treated
nationally at acute care hospitals, generally as HCOs. Although, as
described in detail in our responses below, we are not finalizing this
specific revision to the SSO policy, as proposed, we continue to be
concerned about the significant number of extremely short-stay patients
currently receiving treatment at LTCHs, a provider type that is
distinguished solely by its focus on long-stay hospital-level care.
Comment: While many commenters urged us not to finalize the
proposed formula for SSO payments that included the option of an IPPS-
comparable payment amount, they did express considerable understanding
of our concerns about the payment incentives inherent in the existing
SSO policy, particularly with regards to the very short stays. We
received numerous suggestions on an approach more targeted with the
goals of avoiding excessive payment for such very short stays, avoiding
underpayment of appropriate admissions, and also avoiding any payment
incentives that would allow LTCHs to retain patients unnecessarily to
exceed the SSO thresholds. Although opposing these proposed revisions,
one commenter encouraged us to modify the proposed policy to strike a
balance between payment adequacy and financial incentives.
A number of commenters urged us to establish a category of very
short stay discharges (VSSDs) mirroring the payment policy for stays of
1 through 7 days that we proposed when we designed the LTCH PPS (67 FR
13453, March 22, 2002) suggesting that we continue to pay the remainder
of SSO cases under the existing SSO policy. The commenters presented
several other variations in the definition of a VSSD and also
suggestions for a SSO policy payment methodology, which include:
VSSD cases would be defined as cases with a LOS of less
than \1/6\ of the geometric ALOS. These VSSDs would be paid under our
proposed policy.
VSSD cases should be defined from 1 through 5 or 7 days,
and be reimbursed at 100 percent of cost.
VSSD cases should be reimbursed at a percentage of cost
(for example, 95 percent) with the 5 percent reallocated to other SSO
payment levels.
Define VSSD cases as 10 to 20 percent of the geometric
ALOS: (1) Reduce costs from 120 percent to 100 percent for VSSD cases;
(2) For other cases up to \5/6\ of the geometric mean LOS, 110 percent
costs.
Create three categories of SSO cases--VSSD cases,
intermediate short stay cases, and all other short stay cases up to \5/
6\ (existing definition of SSO): (1) A VSS case is a case that has a
LOS equal to or less than \2/6\ of the geometric ALOS for a LTC-DRG and
paid the lesser of the three existing options with 100 percent of cost
(instead of 120 percent); (2) Intermediate short stay cases would be
between \5/6\ of the geometric ALOS and \4/6\ of the geometric ALOS,
and paid the lesser of the three existing options with 110 to 115
percent of cost (instead of 120 percent); (3) All others would be those
cases that exceed \4/6\ of the geometric ALOS but are less than or
equal to \5/6\ of the geometric ALOS and paid the least of three
existing options with 115 to 120 percent of cost.
For cases with lengths of stay less than or equal to 20
percent of the geometric ALOS, use IPPS-comparable payment rates.
For VSSD cases, the SSO payment should be 100 percent of
costs for 8-20 day stays and the full LTC-DRG for stays of 20 or more
days. LTCH cases with a LOS greater than 20 days should be removed from
the SSO definition.
For cases where the ALOS is equal to or less than 20
percent of the geometric mean LOS, Medicare should pay less than cost
(that is, at 80 percent or 90 percent of cost) and reallocate the
remainder to other LTCH PPS payments.
Pay all SSO patients at 110 percent of cost.
For VSSD cases, payments should be 100 percent costs or 22
percent per diem; for stays of 8 days through the up to \5/6\ the
geometric ALOS, use the same method as presently used.
Convert the IPPS comparable payment to per diem (similar
to transfer DRG methodology) and pay based on

[[Page 27851]]

the actual number of days that a patient is in the LTCH without capping
the payment at the full IPPS DRG to recognize the amount of resources
and effort expended by the LTCH.
Pay SSOs under an additional LTC-DRG similar to CMG 5000
under the IRF PPS if the LOS is below a certain number of days. It
would receive a low fixed payment.
Response: We have carefully evaluated the comments that we received
on the proposed modifications to the SSO payment policy. Specifically,
we understand the commenters' concerns that applying the option of an
IPPS-comparable payment to all SSO cases at LTCHs would result not only
in paying for very short stay cases under this policy, but also could
result in making such a payment under the same LTCH PPS SSO policy
option for a patient who is treated for a relatively long stay.
Accordingly, under our finalized policy, we believe that it is
appropriate to provide that as the length of a SSO stay increases, the
case begins to resemble a more ``typical'' LTCH stay and
consequentially, it is appropriate that payment should be based
increasingly more on what would otherwise be payable under the LTCH
PPS. Therefore, under the SSO policy at Sec. 412.529, effective for
discharges occurring on or after July 1, 2006, we will pay the lesser
of 100 percent of the estimated costs for the discharge, 120 percent of
the per diem of the LTC-DRG multiplied by the LOS, the full LTC-DRG
payment, or a blend of the comparable IPPS per diem payment amount
(capped at the full IPPS comparable payment amount) and the 120 percent
of the LTC-DRG per diem payment amount (as described in greater detail
below). The IPPS comparable payment amount portion of the blend at
Sec. 412.529 is determined in the same manner as we proposed in the RY
2007 LTCH PPS proposed rule (71 FR 4688 through 4690), and as described
above in this section. (As noted elsewhere, the SSO policy has been a
feature of the LTCH PPS since its inception for FY 2003 based on data
analysis of FY 1998 and 1999 MedPAR files. The data simulations and
projections upon which the existing policy was based, as well as
alternatives that we evaluated, are detailed in the FY 2003 final rule
for the LTCH PPS (67 FR 55954, 55995-56006).)
We are not establishing a category of VSSDs or VSSOs, suggested by
a significant number of commenters for the same reason that we
originally decided not to distinguish such cases at the inception of
the LTCH PPS for FY 2003 (67 FR 55954, 56000 through 56002). At that
time, we determined that such a policy produced a payment ``cliff,'' by
which a significantly higher payment would result from an 8 day stay
than from a 7 day stay. Although we agree that generally, LTCH stays of
7 days or less are the most obvious example of a stay that should not
be treated at an LTCH (and some of the commenters suggested a VSSD
threshold of as few as 5 days), we believe that the policy that we are
finalizing, described in detail below, addresses this concern without
providing an inappropriate payment incentive for extending a patient
stay at an LTCH. The payment alternative that we are finalizing is
based on recognizing the distinction between the shortest stays and
those stays that, although still technically are SSOs, more typically
represent the type of cases for which the LTCH provider category was
established.
In this final rule, therefore, under the SSO policy at revised
Sec. 412.529, beginning with discharges occurring during RY 2007, we
will pay the lesser of 100 percent of the estimated costs of the
discharge (as we proposed in the RY 2007 LTCH PPS proposed rule), 120
percent of the LTC-DRG per diem payment amount multiplied by the LOS,
the full LTC-DRG payment, or an LTCH PPS payment based on a blend of
the IPPS-comparable per diem payment amount (capped at the full IPPS
comparable payment amount), and the 120 percent of the LTC-DRG per diem
payment amount (as derived from a feature of the existing SSO policy)
(as described in greater detail below).
We are providing for this fourth option based on the above
described blend of payments because, as noted above, we believe that as
the length of a SSO stay increases, the case begins to resemble a more
``typical'' LTCH stay as defined under section 1886(d)(1)(B)(IV)(I) of
the Act and envisioned by the statutes authorizing the establishment of
the LTCH PPS. Consequentially, under the blend alternative to the SSO
policy at Sec. 412.529(c)(2)(iv) that we are establishing in this
final rule, as the LOS of the SSO case increases, the percentage of the
IPPS comparable per diem amount will decrease and the percentage of the
120 percent of the LTC-DRG specific per diem amount will increase. We
are further ``capping'' the IPPS-comparable per diem portion of the
blend option at an amount comparable to the full IPPS payment amount,
described below, for a specific DRG. We believe that capping the IPPS
comparable per diem amount portion of the blend option of the SSO
payment formula at the full IPPS comparable payment amount is
consistent with the overall premise of the blend alternative, stated
above. In capping the IPPS-comparable portion of the blend payment at
an amount that would be comparable to the full IPPS comparable payment
amount, we affirm the underpinnings of the revised SSO policy that we
are finalizing, which are, that as the LOS of a LTCH hospitalization
increases, the treatment resources and costs associated with the stay
are more in keeping with typical payments under the LTCH PPS and less
comparable to an IPPS stay. The IPPS-comparable amount under this
finalized SSO payment option, will be determined by the methodology
that we proposed in the RY 2007 proposed rule for the fourth option to
the SSO payment adjustment. Although we are not finalizing that policy,
we are adopting the definition of ``IPPS comparable'' established in
the RY 2007 LTCH PPS proposed rule.
We would also note that the patient classification system for both
the IPPS and the LTCH PPS is the DRG system. The only distinction
between the DRG systems used by the IPPS and the LTCH PPS is the
weights assigned to each DRG that we derive from the data emerging from
acute care hospitals and LTCHs, respectively. Under the blend payment
option for SSOs described below, as the LOS of a SSO increases, the
percentage of the payments based on the LTC-DRGs will increase and the
percentage of the payment based on the IPPS-comparable payment derived
from the IPPS DRGs will decrease.
Specifically, in the RY 2007 LTCH PPS proposed rule, we proposed
that we would calculate an amount payable under subpart O comparable to
what would otherwise be paid under the IPPS for the costs of inpatient
operating services which would be based on the standardized amount
determined under Sec. 412.64(c), adjusted by the applicable DRG
weighting factors determined under Sec. 412.60 as specified at Sec.
412.64(g). This amount would be further adjusted to account for
different area wage levels by geographic area using the applicable IPPS
labor-related share, based on the CBSA where the LTCH is physically
located as set forth at Sec. 412.525(c) and using the IPPS wage index
for non-reclassified hospitals published in the annual IPPS final rule.
(In the RY 2006 LTCH PPS final rule (70 FR 24200), we discuss the
inapplicability of geographic reclassification procedures for LTCHs.)
For LTCHs located in Alaska and Hawaii, this amount would also be
adjusted by the applicable proposed

[[Page 27852]]

COLA factor used under the IPPS published annually in the IPPS final
rule. (Currently these same COLA factors are used under both the IPPS
and the LTCH PPS.)
Additionally, this SSO proposed revised payment adjustment
alternative (that is, an amount comparable to what would be paid under
the IPPS for the case) could also include a DSH adjustment (see Sec.
412.106), if applicable.
Under the proposed revision to the LTCH PPS SSO payment adjustment
in the case of a LTCH that is a teaching hospital, we explained that we
would determine the IME payment adjustment for the LTCH by imputing a
limit on the number of full-time equivalent (FTE) residents that may be
counted for IME (IME cap) based on the LTCH's direct GME cap as set
forth at Sec. 413.79(c)(2) (which would already have been established
for a LTCH which had residency programs). Thus, we proposed calculating
an IME payment for this LTCH that is comparable to the IPPS payment
formula set forth at Sec. 412.105. The use of a proxy for the IME cap
would be necessary because it would not be appropriate to apply the
IPPS IME rules literally in the context of this LTCH PPS payment
adjustment. Under the IPPS, IME payment regulations at Sec. 412.105,
limits were established on the number of FTE residents a hospital is
permitted to count for IME payments based the number of residents
reported by the hospital 1996 cost report. This IME FTE resident cap
under the IPPS would not translate appropriately to a LTCH. Since a
LTCH was not paid IME in 1996 it would not have reported any FTE
residents for IME purposes on its 1996 cost report. Therefore, we
proposed using the LTCH's direct GME cap for the purpose of calculating
the proposed payment adjustment alternative for SSOs. We believed this
proposal was reasonable since it would cap residents for IME payment
purposes based on the best available data on residency programs at
LTCHs (which could be computed from direct GME data for LTCHs that had
residency programs). Using an imputed GME cap would enable us to factor
an adjustment for residency programs into a Medicare payment under the
LTCH PPS for those SSO cases where the least of the payment
alternatives is an amount under the LTCH PPS comparable to what would
be paid under the IPPS. Both a DSH adjustment and an IME adjustment, as
necessary, could be computed from data already collected on the LTCH's
cost report.
As we discussed in the RY 2007 LTCH PPS proposed rule, an IPPS
comparable amount under the LTCH PPS for the purposes of the SSO
payment adjustment, would also include payment for inpatient capital-
related costs, based on the capital Federal rate at Sec. 412.308(c),
which would be adjusted by the applicable IPPS DRG weighting factors.
This amount would be further adjusted by the applicable geographic
adjustment factors set forth at Sec. 412.316, including wage index
(based on the CBSA where a LTCH is physically located and derived from
the IPPS wage index for non-reclassified hospitals as published in the
annual IPPS final rule), and large urban location, if applicable.
A LTCH PPS payment amount comparable to what would be paid under
the IPPS would not include additional payments for extraordinarily high
cost cases under the IPPS outlier policy (Sec. 412.80(a)). Under
existing LTCH PPS policy, a SSO case that meets the criteria for a LTCH
PPS HCO payment at Sec. 412.525(a)(1) (that is, if the estimated costs
of the case exceed the adjusted LTC-DRG SSO payment plus the fixed-loss
amount) would receive an additional payment under the LTCH PPS HCO
policy at Sec. 412.525(a) (67 FR 56026; August 30, 2002). For purposes
of HCOs under the proposed SSO policy, we would continue to use a
fixed-loss amount calculated under Sec. 412.525(a), and not a fixed-
loss amount based on Sec. 412.80(a). Medicare would pay the LTCH 80
percent of the costs of the case that exceed the sum of the applicable
option and the fixed-loss amount determined under Sec. 412.525(a). As
we discussed in the RY 2007 LTCH PPS proposed rule, we used the term
``comparable'' in the proposed fourth payment alternative so that the
public will realize that this payment alternative is not exactly the
same as the one that is similarly worded in Sec. 412.534(c)(2),
(d)(1), and (e)(1), discussed in section VI.B. of the RY 2007 LTCH PPS
proposed rule.
Therefore, under the SSO policy that we are finalizing in this
final rule, we are providing for a blend alternative under the LTCH PPS
at Sec. 412.529(c)(2)(iv), that is based on a percentage of the
payment calculated using the standard Federal payment rate and LTC-DRG
weights utilized under the LTCH PPS and, as described above, a
percentage of the paymentscomparable to the standard Federal rates, DRG
weights, and applicable payment policies established under the IPPS.
Specifically, for the ``LTCH'' component of this SSO payment
option, the percentage based of the 120 percent of the LTC-DRG per diem
amount will be based on the ratio of the (covered) LOS of the case to
the lesser of the SSO threshold for the LTC-DRG (that is, \5/6\ of the
geometric ALOS of the LTC-DRG) or 25 days (as discussed below). In
addition, the LOS in the numerator may not exceed the number of days in
the denominator (that is, the percentage may not exceed 100 percent).
The remaining percent of the blend alternative at Sec.
412.529(c)(2)(iv) (that is, 100 percent minus the percentage that is
based on the 120 percent of the LTC-DRG per diem amount explained
above) will be applied to the IPPS comparable per diem amount, detailed
above. For purposes of the blend payment option, we have also specified
that the IPPS comparable per diem amount will be capped at the full
IPPS comparable amount, as explained below.
In explaining this blend payment option, we want to emphasize,
there has been no change in our existing policy at Sec. 412.503
regarding Medicare payment for covered days under the LTCH PPS.
Therefore, under the SSO policy at revised Sec. 412.529, including the
above described blend option, until the SSO threshold (\5/6\ the ALOS
for each LTC-DRG) is exceeded at which point a full LTC-DRG payment is
generated, Medicare payment for a specific case is based on the number
of days of coverage remaining to each beneficiary. We also want to note
that in determining the percentage of the LTC-DRG-based portion of the
blend option, we utilize the lesser of 25 days or the SSO threshold
(\5/6\ ALOS of each LTC-DRG) as the number divided into the covered
days of the stay. In keeping with the underlying premise of the blend
option under the SSO policy, we believe that as the length of a SSO
stay increases, the stay more closely resembles a characteristic LTCH
stay. Consequently, for specific purposes of the blend, we believe that
utilizing the ``greater than 25 day'' statutory definition as a
benchmark for identifying an appropriate LTCH hospitalization
recognizes Congressional intent in establishing LTCHs as a distinct
provider category. In computing the blend option, therefore, as
described below, we believe that it is both fair and reasonable that
for each patient stay, we utilize the lesser of the LTC-DRG's specific
SSO threshold or 25 days as the denominator.
The following example illustrates how the blend alternative at
Sec. 412.529(c)(2)(iv) would be determined where the LTCH patient has
a covered LOS of 11 days, has an estimated cost of $11,775, and is
grouped to hypothetical DRG XYZ. For purposes of this example, for DRG
XYZ, the full LTC-DRG payment is $38,597.41, the LTCH PPS geometric
ALOS is 33.6 days,

[[Page 27853]]

the LTCH PPS SSO threshold (that is, \5/6\ of the geometric ALOS) is
28.0 days, the full IPPS comparable amount is $8,019.82, and the IPPS
geometric ALOS is 4.5 days. For this example, the blend alternative at
Sec. 412.529(c)(2)(iv) would be calculated as follows:
Step (1): Determine the LTC-DRG per diem portion of the
blend alternative at Sec. 412.529(c)(2)(iv).
(a) The 120 percent of the LTC-DRG per diem amount for the 11 days
stay is equal to the full LTC-DRG payment divided by the geometric ALOS
of LTC-DRG XYZ multiplied by the covered LOS and multiplied by 1.2.
[GRAPHIC] [TIFF OMITTED] TR12MY06.000

(b) The percentage of the 120 percent of the LTC-DRG per diem
amount for 11 days is calculated by dividing the covered LOS by the
lesser of the \5/6\ ALOS of LTC-DRG XYZ or 25 days (that is, 11 days /
25 days = 0.44). (In this example, 25 days was used in the denominator
since the \5/6\ ALOS of LTC-DRG XYZ (28.0 days) is greater than 25
days. If the \5/6\ ALOS of LTC-DRG XYZ was less than 25 days, that
value would have been used in the denominator of this calculation. In
addition, the LOS in the numerator may not exceed the number of days in
the denominator (that is, the percentage may not exceed 100 percent).
(c) Determine the LTC-DRG per diem portion of the blend alternative
at Sec. 412.529(c)(2)(iv) by multiplying the percentage determined in
Step 1b by the 120 percent of the LTC-DRG per diem amount for the 11
days (from Step 1a) (that is, 0.44 x $15,163.28 = $6,671.84).
Step (2): Determine the IPPS comparable per diem portion
of the blend alternative at Sec. 412.529(c)(2)(iv).
(a) The IPPS comparable per diem amount is equal to the full IPPS
comparable amount divided by the geometric ALOS of IPPS DRG XYZ
multiplied by the covered LOS (that is, $8,019.82 / 4.5 days x 11 days
= $19,604.00. However, since this amount exceeds the full IPPS
comparable amount ($8,019.82), only the full IPPS comparable amount
($8,019.82) will be used in the blend alternative calculation.
(b) The percentage of the IPPS comparable per diem amount is
calculated by subtracting the percentage determined in Step 1b from 100
percent (that is, 1 minus the covered LOS divided by the lesser of the
\5/6\ ALOS of DRG XYZ or 25 days) or 1 minus 0.44 (as shown in Step 1b
= 0.56).
(c) Determine the payment amount of the IPPS comparable per diem
portion of the blend alternative at Sec. 412.529(c)(2)(iv) for the 11-
day stay by multiplying the percentage determined in Step 2b by the
IPPS comparable per diem amount (from Step 2a), (that is, 0.56 x
$8,019.82 = $4,491.10).
Step (3): Compute the total payment amount of the blend
alternative at Sec. 412.529(c)(2)(iv) by adding the LTC-DRG per diem
portion (Step 1c) and the IPPS comparable per diem portion (Step 2c),
(that is, 6,671.84 + $4,491.10 = $11,162.94).
Table 10 provides detailed instructions for calculating payments
using the blend alternative.

BILLING CODE 4120-01-P

[[Page 27854]]

[GRAPHIC] [TIFF OMITTED] TR12MY06.001

BILLING CODE 4120-01-C

[[Page 27855]]

In this example, the SSO payment would equal $11,162.94 (using the
blend alternative at Sec. 412.529(c)(2)(iv)) since it is lower than
100 percent of cost ($11,775), 120 percent of the LTC-DRG per diem
($15,163.28), and the full LTC-DRG payment ($38,597.41).
If, in the above example, the covered LOS of the patient would have
been 24 days, the blend alternative percentage of the 120 percent of
the LTC-DRG per diem amount in step 1b would be 0.96 (instead of 0.44)
and the blend percentage of the IPPS comparable per diem amount in step
2c would be 0.04 (instead of 0.56). For a covered LOS of 24 days, the
120 percent of the LTC-DRG per diem amount would be $33,083.97. The
comparable IPPS per diem amount would be $42,772.37, which is greater
than the full IPPS comparable amount ($8,019.82). Thus, for a covered
LOS of 24 days, the amount determined under the blend alternative at
Sec. 412.529(c)(2)(iv) would be as follows:

$32,080.97=[(0.96 x $33,083.52) + (0.04 x $8,019.82)].

As the LOS of an SSO case approaches the SSO threshold (that is,
\5/6\ of the geometric ALOS of the LTC-DRG), the amount determined
under the blend alternative at Sec. 412.529(c)(2)(iv) more closely
approximates a full LTC-DRG payment. For instance, in the example with
a covered LOS of 24 days discussed above, the amount determined under
the blend alternative at Sec. 412.529(c)(2)(iv) ($32,080.97) is
approximately 83 percent of the full LTC-DRG payment ($38,597.41).
For cases with very short lengths of stay (that is, even less than
the IPPS ALOS), the IPPS comparable per diem amount portion of the
blended payment amount would be less than the full IPPS comparable
payment amount based on the per diem calculation described above, which
would be a percentage of the full IPPS comparable payment. Furthermore,
as described below, as the LOS reaches the lower of the five-sixths SSO
threshold or 25 days, the payment could be equal to the full LTC-DRG
(based on existing SSO policy). Because we are limiting the denominator
of the blend percentage to the lesser of the \5/6\ ALOS or 25 days, for
SSO cases in LTC-DRGs that have an SSO threshold of greater than or
equal to 25 days and that have a covered LOS of 25 days or more, the
blend alternative at Sec. 412.529(c)(2)(iv) will equal 120 percent of
the LTC-DRG per diem amount determined under Sec. 412.529(d)(1). For
instance, in the example presented above in this section, where the SSO
threshold for DRG XYZ is equal to 28.0 days, for an LTCH patient with a
covered LOS of either 25, 26, 27 or 28 days, the blend alternative at
Sec. 412.529(c)(2)(iv) will equal 120 percent of the LTC-DRG per diem
amount based on the covered LOS of the stay (that is, $33,083.52 for a
25-day LOS). Under this revised SSO policy, once the covered LOS equals
25 days, Medicare payment for an SSO case would be based on the lesser
of 100 percent of the estimated cost of the case, 120 percent of the
per diem LTC-DRG multiplied by the LOS or the full LTC-DRG since the
blend option as described above, at that 25-day point, will be based on
100 percent of the LTC-DRG per diem payment amount and 0 percent of the
IPPS comparable per diem payment amount. Therefore, once the LOS is 25
days or more, the blend method ceases to apply for purposes of
calculating the payment amount and instead, the payment amount for the
fourth option is equal to one of the other options: 120 percent of the
LTC-DRG per diem amount. In this example, calculation of SSO payment
for days 26, 27, or 28 would be based on the lesser of those
alternatives and if the patient remained at the LTCH on or after day
29, the SSO threshold would be exceeded and a full LTC-DRG would be
generated.
Although we did not adopt many of the commenters' suggestions that
we distinguish VSSO or VSSD cases and pay them either at or below cost,
we do believe that this finalized payment policy for SSO cases endorses
their premise that such cases do not fit the typical profile of LTCH
cases and it can be reasonably argued that such cases should not be
paid similarly to those that are more characteristic of LTCH cases. In
general, we believe that our finalized policy, which transitions from a
larger percentage of the LTCH PPS payment that is based on the IPPS
comparable per diem amount to a higher proportion of payment based on
the 120 percent of the LTC-DRG per diem amount as the LOS increases,
realistically addresses our significant concerns that the shortest LOS
cases could have continued to be treated at an acute care hospital and
not require an LTCH stay and therefore payments to LTCHs under the LTCH
PPS should be adjusted accordingly.
Comment: We received numerous comments that praised the quality
care given to Medicare beneficiaries by the LTCHs in their areas and
urged us not to make significant cuts in Medicare payments which they
fear would result in reduced services. The commenters asserted that,
coupled with CMS' decision to maintain LTCH standard Federal rates from
RY 2006, revision of the payment adjustment for SSO patients will be
detrimental to the industry as costs of providing care will exceed
payment. The commenters further stated that underpayment to LTCHs will
cause patients with complex medical conditions to lose access to
appropriate care and increase costs to acute care hospitals which will
be forced to continue caring for these sicker patients. The commenters
believed that the revised SSO payment policy, as proposed, would have a
profound impact on the entire health care system of their communities
since their LTCHs are a critical component of the state health care
delivery system. They state that since LTCHs offer specialized services
not available elsewhere, severe cutbacks for LTCHs could resonate
throughout the entire health care system. One commenter noted that CMS
made a statement that it does not expect any changes in quality of care
or access to services for Medicare beneficiaries under the LTCH PPS
based on proposed rule policies. However, one of the commenters
believes, to the contrary, a decrease in payments will have pervasive
effects on LTCHs. Moreover, the commenter pointed out that the impact
of changes in our payments to LTCHs because of the proposed SSO policy
revisions will not only affect services offered to ``the most
vulnerable patients,'' but also will have an impact on the staff of the
LTCHs. Several of the commenters specify that they envision that acute
care hospitals will be overtaxed and incur additional costs without
being able to free up ICU beds for patients who need short-term acute
care services. They also state that the acute care hospitals in their
communities may not be able to meet patient needs for those needing
LTCH services.
Response: We understand the serious concerns expressed by the
commenters and, although we are not finalizing the particular SSO
policy revisions as it was proposed, we want to assure the commenters
that we are aware of their concerns. We also agree that if a Medicare
beneficiary is appropriately referred, and admitted, to one of the
approximately 400 LTCHs in the United States for a complex medical
condition, the beneficiary could receive excellent medical care from a
highly trained and committed professional staff. As discussed above in
this section, we revisited the specific proposed payment revisions to
the SSO policy based on the many clear and well-crafted comments that
we received, and the policy that we are finalizing will not have the
more

[[Page 27856]]

extensive financial consequences on longer SSO cases expected by the
commenters from the proposed policy changes. As explained in more
detail in the impact section of this notice, we estimate that the
financial impact on LTCHs from this final policy will be significantly
less than the original proposed policy.
Therefore, we do not believe that the revisions to the SSO policy
that we are finalizing will result in LTCHs going out of business nor
that significant services would have to be curtailed with dire
consequences for beneficiaries, staff or the local medical care system.
As noted elsewhere, our data indicates that for FY 2003, the aggregate
margins for LTCHs were 7.8 percent and for 2004, they were 12.7
percent. Therefore, we believe that even with decreased Medicare
payments for SSO patients, such as we are envisioning based on this
finalized payment policy and detailed in the Impact (see section XV. to
this final rule), we believe that LTCHs will generally be able to
continue delivering high quality medical care to their patients. We
continue to believe, however, that acute-care hospitals should not be
discharging patients to LTCHs without having provided a full episode of
care and we also continue to have concerns about LTCHs admitting those
short stay patients who could otherwise continue to be treated in acute
care hospitals. We have revised our policy under the SSO adjustment and
in finalizing the blend option for paying SSO patients, we do not
believe that we are requiring any additional determinations nor are we
creating any circumstance that should not already be incorporated in
the determination to admit a patient to an LTCH following treatment at
an acute care hospital.
Comment: Numerous commenters argued that our proposed IPPS-
comparable payment option under the SSO policy, if finalized, could be
expected to discourage physicians from discharging patients from acute
care hospitals and admitting them to LTCHs. Thus, they charged that we
were establishing a system wherein clinical judgment is being trumped
by determinations based solely on payment. The commenters further
stated that since physicians discharge patients to LTCHs because it is
in the patients' best interests, we would be substituting our judgment
for a physician, setting a very dangerous precedent. Furthermore,
physicians cannot be expected to guess the LOS or the death of a
severely ill patient upon admittance to the LTCH. The commenters also
note that there is available data supporting the medical determination
that physicians are discharging patients to the LTCH setting because
the patient's needs are better served in the LTC setting than in an
acute care hospital setting.
Response: As stated above in this section, we have revised our
proposed IPPS-comparable payment option in light of the comments that
we have received and after further data and policy analysis. Contrary
to what the commenter states, however, the policy objective underlying
the proposed SSO rule was to preclude LTCHs and physicians from taking
advantage of a system that significantly overpays for patients that do
not require the extensive resources that such high payments are
intended to support. As discussed later, we recognize that some SSO
cases are unavoidable due to death or an unexpected clinical
improvement and early discharge. However, we have noted that in a
community where both acute care and LTCH beds are available, patients
are routinely transferred from the acute care hospital to the LTCH for
the remainder of care just because the LTCH resource is available. We
are concerned that this trend has increased exponentially because it
provides an acceptable disposition of the patient for the physician,
and because it is an expeditious means of lowering the acute hospital
LOS and costs. There is no question that the multidisciplinary approach
for certain complex patients (for example, ventilator weaning) is
appropriate. However, we are very concerned that the LTCH is assuming
the role of the acute care hospital for many other patients, at a far
higher cost, which it is possible to do as long as the LTCH continues
to maintain an ALOS of 25 days for purposes of qualifying for payments
under the LTCH. We do not believe, moreover, that the payment policy
option that we are finalizing for SSO discharges will deter physicians
from delivering appropriate care to beneficiaries or from making
appropriate referrals to LTCHs. We are seeking, in finalizing this
payment policy, to remove any financial incentive that could encourage
an LTCH to admit a patient from an acute-care hospitals prior to that
patient having received a full episode of care at the acute care
hospital.
Comment: Several commenters cited a study centered at Barlow
Respiratory Hospital that charted the course of ventilator weaning
treatment for 1419 medically unstable patients at 23 LTCHs from March
2002 through February 2003. The study reports that more than 50 percent
of this group of patients were weaned from the ventilators and
evidenced improvement both neurologically and functionally. The
commenters assert that this study exemplifies the excellent level of
care for such patients at LTCHs.
Response: We agree with the commenters that the results of the
``Barlow'' study indicate a significant rate of very positive outcomes
for the very sick LTCH patients who were included in the study. In the
late 1990s, we sponsored a ventilator demonstration study which
included, among other acute care settings, the Mayo Clinic and Temple
University Hospital, that also reported impressive results. We further
understand that the results of the Barlow study were used for the
establishment of national ventilator-weaning protocols issued by the
National Institutes of Health and that input from the Temple University
program continues to be critical in formulating national standards. We
believe that these programs established a level of excellence that
should be emulated by all hospital-level facilities that treat
ventilator-dependent patients, including acute care hospitals, LTCHs,
and IRFs. Accordingly, we believe it is not simply the fact that the
patient is treated at a LTCH that is critical to predicting positive
results. Rather, it is the type of clinical intervention that is
furnished to the patient at the hospital. In many cases that
intervention is currently exemplified at acute care IPPS hospitals, as
well as at LTCHs.
Comment: Several commenters claim that even for what we would term
``appropriate'' admissions, our proposed payment option under the SSO
policy that could generate an IPPS-comparable payment will erect
barriers to the use of LTCHs. One commenter described the typical LTCH
patient: An elderly patient with persistent multiple-system failures
who is de-conditioned and protocol-resistant. The commenter asserted
that these patients respond impressively to the aggressive blending of
therapeutic interventions, interdisciplinary teams, and medical
intervention that is not otherwise available in the community or
tertiary hospital setting. The commenter states that from ``a case rate
reimbursement perspective,'' grouping such a ``treatment-resistant''
population with the rest of the general acute care population is highly
inappropriate. Two commenters asserted that even when adjusted for
HCOs, acute care hospitals are not designed or intended to provide
service to long-term care-type patients. The commenters emphasized that
acute care hospitals are not designed to provide extended care
services, unlike LTCHs, with their specially trained expert staff and
clinicians and multi-disciplinary approaches. LTCHs, noted one
commenter, are like acute care

[[Page 27857]]

hospitals but must sustain a high level of care for longer periods.
Response: Under this fourth payment option, as the LOS increases,
the payment for such cases under the LTCH PPS will be based on a
decreasing percentage of an IPPS-comparable per diem amount and an
increasing percentage of the LTC-DRG per diem payment amount. We
believe that this payment adjustment recognizes the particular
expertise of LTCHs treating a population who require long-term care
because the payment percentage based on the 120 percent of the LTC-DRG
per diem amount increases (and the payment percentage based on the
IPPS-comparable per diem amount decrease) as the patient LOS increases.
However, we do not agree with the statement that ``acute care hospitals
are not designed to provide extended care services'' such as is the
care provided in LTCHs. Although there may be communities with LTCHs
where the acute care hospitals may have functionally ``restricted''
their services because of the presence of these LTCHs, as well as the
financial advantages and clinical niche that they have sought to fill,
acute care hospitals are equipped to provide services to the same
population, and the IPPS under which they are paid, is calibrated based
on the resources needed to treat those patients. Moreover, because
there are over 3,500 acute care hospitals and approximately only 400
LTCHs, which are not distributed uniformly throughout the U.S. (for
example, few are located in California), many acute care hospitals are
providing care for the vast majority of Medicare beneficiaries
requiring the type of care described by the above commenters. Our FY
2005 MedPAR files indicate that 20 percent of cases treated at acute
care hospitals nationwide have lengths of stay between 7 and 14 days
(that is, 2,386,057 out of a total of 11,855,205 cases). Additionally,
5.2 percent of acute care hospital cases (617,219) or have LOS greater
than 14 days. We believe, that in those acute care hospitals, to
paraphrase the final commenter, those patients are receiving in an
acute care hospital paid under the IPPS, the ``high level of care for
longer periods,'' they would also receive as patients at an LTCH.
Comment: Several commenters claimed that we based our proposed
revision of the SSO policy that could have resulted in an IPPS-
comparable payment for a particular SSO case, on the incorrect
assumption that ``short stay'' LTCH patients are clinically similar to
short term acute care hospital patients. They assert that the SSO
thresholds (\5/6\ of the geometric ALOS for each LTC-DRG) were never
meant to be a measure of the appropriateness of an LTCH admission, but
rather, were mathematically derived from the per diem payment amounts,
which were based on a methodology that would produce a payment-to-cost
ratio for SSO cases close to one. Furthermore, one commenter states the
presence of a SSO patient does not indicate a premature discharge from
an acute care hospital, citing that at this commenter's LTCHs, 11
percent of the patients had previously qualified as HCOs at the
referring acute care hospital. Additionally, the commenters asserted
that we are mistaken in its claim that LTCHs can foresee the LOS for
patients admitted to LTCHs or predict likely deaths, where in
actuality, upon admission, there is generally no substantial clinical
difference between long stay and ``short stay'' patients. Commenters
found it to be incongruous that a patient in LTC-DRG 475 (Respiratory
System Diagnosis with Ventilator Support) would still be an SSO patient
(for example, 28 days for LTC-DRG 475) and could be hospitalized in an
LTCH for greater than 25 days (the definition of an LTCH). A case such
as this could be appropriately treated in a LTCH. The commenters noted
that physicians cannot and should not be asked to predict the LOS or
the likely death of severely ill patients. Commenters further asserted
that we have made an erroneous assumption that LOS equates to
``severity of illness'' (SOI) and is a proxy for the appropriateness of
an admission. However, the commenters assert that this is not the case.
They point to another incorrect belief in the proposed rule that LTCHs
function like acute care hospitals when they have patients for the same
LOS. On the contrary, the commenters assert that SSO patients are being
admitted because they look just like ``inliers,'' and we have proposed
that LTCHs absorb payment rates that bear no relationship to the costs
of furnishing patient care at the LTCH level.
Furthermore, based on claims analysis, using the APR-DRGs, the
medical complexity and mortality rates of SSO patients, as measured by
the SOI and ``risk of mortality'' (ROM) standards are very similar to
that of the LTCH ``inlier'' patient population. The commenters further
presented comparisons between these measures for SSO patients and for
patients with the same DRGs in acute care hospitals, indicating that 52
percent of all patients admitted to LTCHs were in the highest APR-DRG
ROM categories, whereas only 24 percent of acute care patients are in
those same categories, resulting in a total percentage of APR-DRGs 3
and 4 at LTCHs among the SSO population that is approximately double
that of acute care hospitals. The commenters noted that higher patient
acuity correlates to higher utilization of facility resources, and
hence, higher costs, which argues against our proposed policy that
would significantly lower reimbursements for SSO cases. Several
commenters also provided a comparison of case mix indices (CMI) for
LTCH SSO cases and cases at acute care hospitals. The commenters assert
that SSOs at LTCHs have a relative CMI that parallels the CMI of LTCH
``inlier'' cases at LTCHs and which is 72 percent higher than the
comparable CMI at acute care hospitals.
Response: We are well aware that not every SSO patient can be so
identified at the time of admission to an LTCH. We further recognize
that many patients who will eventually be defined as SSO patients
because their LTCH stay is equal to or less than \5/6\ of the GMLOS for
their particular LTC-DRG, may, upon admission, present the same
severity of illness and risk of mortality as ``inlier'' LTCH patients.
In this respect, the assertions and data presented by the commenters
comparing the SOI and ROM based on the APR-DRGs of SSO patients to
those of ``inliers'' were persuasive, and coupled with additional
considerations, we revisited our proposed payment policy for SSO cases.
We agree that SSO thresholds described by the commenters were never
meant to be a measure of the appropriateness of an LTCH admission, but
rather, were mathematically derived from the per diem payment amounts.
We believe this enabled us to arrive at a reasonable payment policy at
the outset of the LTCH PPS for cases that had lengths of stay
significantly shorter than those patients fitting the typical profile
of those who should be treated at LTCHs. We recognize that an LTCH
admission could be a medically complex one (an appropriate LTCH
admission) with a relatively long LOS and still be considered an SSO
case. We also acknowledge that, in some cases, LTCH admissions could
also have qualified as HCOs at the referring acute care hospital. We
still have concerns, however, that patients in LTC-DRGs with
significantly shorter stays than the ALOS for that particular DRG might
have been unnecessarily admitted to the LTCH rather than receiving all
of their care in the acute care hospital. In addition, we are adjusting
the LTCH PPS to appropriately pay for those stays that consume far less
than a full array

[[Page 27858]]

of services in the LTCH for the particular LTC-DRG.
We believe this to be the case since our data indicates a
correlation between the LOS at an acute care hospital for a patient
following treatment at the highest level of intensity (ICU or CCU),
that is, the number of ``recuperative'' days, and whether or not the
patient was admitted to an LTCH upon discharge from the acute care
hospital. As Table 11 indicates, an analysis of the CY 2004 MedPAR
files revealed that for the specified DRGs for acute care cases
following ICU/CCU days, there were significantly fewer ``recuperative''
days for acute care HCO patients that were discharged and admitted to
an LTCH than for those patients that were discharged directly from the
acute care hospital. For acute care cases in DRGs 475 (Respiratory
system diagnosis with ventilator support) and DRG 483 (Trach with
mechanical vent 96+ hours or PDX except face, mouth and neck
diagnosis), the number of ``recuperative'' days were considerably
shorter at the acute care hospital if there was a discharge followed by
an admission to an LTCH. We believe that this data confirms MedPAC's
assertion in the June 2004 Report to the Congress that ``patients who
use LTCHs have shorter acute hospital lengths of stay than similar
patients'' (p. 125).

Table 11.--LOS, ICU/CCU LOS, and Post-ICU/CCU LOS for Selected Inpatient DRGs by Post-Discharge Status
[Live discharges only]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Acute High Cost Outlier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Inlier Outlier
DRG Cases LOS ICU/CCU Post ICU/ Cases LOS ICU/CCU Post ICU/
days CCU days days CCU days
--------------------------------------------------------------------------------------------------------------------------------------------------------
475--no LTCH.................................................... 65,937 10.5 6.4 4.1 3,887 32.5 20.5 12
475--LTCH....................................................... 3,286 12.5 9.5 3 515 29.6 22.6 7
483--no LTCH.................................................... 11,726 31.5 21.8 9.7 3,257 73.6 53.6 20
483--LTCH....................................................... 8,920 26.6 23.3 3.3 2,353 45.7 41 4.7
001--no LTCH.................................................... 22,174 9 4.2 4.8 1,271 29.2 16.9 12.3
001--LTCH....................................................... 477 13.4 8.2 5.2 125 29 21.8 7.2
014--no LTCH.................................................... 216,972 5.5 1.7 3.8 1,257 28.1 13.5 14.6
014--LTCH....................................................... 3,145 7.9 3.5 4.4 108 24.2 16.9 7.3
148--no LTCH.................................................... 117,537 10.5 2.4 8.1 6,552 33.5 14.5 19
148--LTCH....................................................... 1,623 16 6.3 9.7 763 31.7 17.9 13.8
012--no LTCH.................................................... 53,838 5.2 0.7 4.5 294 27.7 9.6 18.1
012--LTCH....................................................... 329 6.8 1.4 5.4 11 20.8 11.5 9.3
087--no LTCH.................................................... 68,976 6.5 2.1 4.4 476 29.9 14 15.9
087--LTCH....................................................... 1,192 9.3 4.4 4.9 37 24.7 15.1 9.6
079--no LTCH.................................................... 139,412 8 1.3 6.7 1,429 34 9.3 24.7
079--LTCH....................................................... 2,543 10 2.7 7.3 73 30.5 10.5 20
088--no LTCH.................................................... 387,285 4.8 0.8 4 501 30 9.3 20.7
088--LTCH....................................................... 2,474 7.3 2.1 5.2 32 30.4 13 17.4
089--no LTCH.................................................... 488,931 5.6 0.9 4.7 1,067 27.9 8.8 19.1
089--LTCH....................................................... 2,999 8 2.2 5.8 53 29.2 13.5 15.7
416--no LTCH.................................................... 194,850 7.4 1.6 5.8 3,660 28.7 13.3 15.4
416--LTCH....................................................... 3,749 9.7 3.8 5.9 390 25.6 18.1 7.5
482--no LTCH.................................................... 4,841 9.8 3.3 6.5 241 35.2 14.9 20.3
482--LTCH....................................................... 145 13 6.5 6.5 31 33.3 21.8 11.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

We further agree that some SSO patients become so by virtue of
death or a faster than expected recovery and early discharge, and that
in certain LTC-DRGs, the SSO threshold still requires a relatively long
hospital stay (for example, DRG 475, Respiratory System Diagnosis with
Ventilator Support). However, in the absence of better admission
criteria, we still are concerned that LTCHs are admitting some SSO
patients that could have received their full care at the acute care
hospital and/or SNF level facility.
However, we do not agree with two comparisons made by a
considerable number of the commenters concerning the SOI and ROM of
LTCH SSO patients to those of acute care patients based on similar
lengths of stay and case-mix indices. Although we will not be
finalizing the specific proposed SSO payment policy option that the
commenters were opposing, we believe that it is essential to evaluate
the basis of these last comparisons.
These commenters submitted data indicating that even though they
may be inpatients grouped to the same DRG, for the same number of days,
a SSO patient at a LTCH is much sicker and has a greater chance of
dying than does the acute care patient. Although we will not be
finalizing the specific proposed SSO payment policy option that the
commenters were opposing, we believe that it is essential to evaluate
the basis of these last comparisons.
Generally, even a patient in an appropriate LTCH admission that has
been previously hospitalized in an acute care hospital received the
diagnostic work up and major interventional treatment during that
initial stay. Assuming that the patient continued to need hospital-
level care after being somewhat stabilized and was discharged to a
LTCH, the discharge to a LTCH could have been determined as clinically
appropriate. The clinical status of this patient at this point cannot
be reasonably compared to a typical patient who is treated in the acute
care hospital and who is grouped to the same DRG. This is the case
because the original patient has already been treated at that initial
level and has required additional hospital-level care either by
remaining at the acute care hospital, which would be paid for under the
IPPS (perhaps as a HCO), or by being admitted to a LTCH where the stay
could either be a SSO or an ``inlier.'' The only valid comparison of
the SOIs and ROMs of two such patients in the context of the
commenter's concerns,

[[Page 27859]]

would be to contrast the SOI and ROMs of the patient at the LTCH with
the patient who, following the same initial intervention at the acute
care hospital, continued treatment at the acute care hospital.
We understand that the proposed option that could have resulted in
paying for a SSO stay based on the IPPS-comparable amount would have
resulted in significant payment reductions to LTCHs for all SSO cases,
even those that by all clinical measures could be considered
appropriate LTCH patients. However, we still believe that modifications
to the SSO policy are necessary to ensure that payments for those cases
appropriately reflect the resources necessary to treat those patients,
which we believe are not the same as the resources necessary to treat a
patient requiring the full level of care available at a LTCH, with
lengths of stay over the SSO threshold for the LTC-DRG. At the outset
of the LTCH PPS, we established the SSO payment adjustment to address
this distinction which we continue to believe is a valid and reasonable
consideration for Medicare payments to LTCHs (67 FR 55995, August 30,
2002).
We believe that the finalized payment policy for SSO cases,
described above, responds to the concerns stated by these commenters.
That is, since LTCHs are certified as acute care hospitals that are
distinguished, by virtue of their greater than 25-day ALOS, for
Medicare payments under the LTCH PPS, per discharge payments are based
upon the high utilization of resources and long stays generally
associated with a specific type of patient. Therefore, we will be
paying SSO patients based on the least of 100 percent of the estimated
costs, 120 percent of the LTC-DRG per diem multiplied by the LOS, the
full LTC-DRG payment, or a blend of the IPPS comparable per diem
payment amount capped at the full IPPS comparable payment amount and
the 120 percent of the LTC-DRG per diem payment amount. (The specifics
of this option are detailed in responses above.) We believe that this
option is both fair and reasonable because as the length of a SSO stay
increases, the case begins to resemble a LTCH stay that requires the
full resources of a LTCH, as we believe was envisioned by the Congress
when they crafted the statutory definition of a ``subclause (I)'' LTCH,
``a hospital which has an inpatient LOS (as determined by the
Secretary) of greater than 25 days'' in section 1886(d)(1)(B)(iv)(I) of
the Act, and thus, is more appropriate for payment under the LTCH PPS.
As noted above, LTC-DRG weights and payment rates under the LTCH PPS
have been calculated to reflect services delivered to Medicare
beneficiaries with complex medical conditions that result in a greater
use of hospital resources, long inpatient stays, and significantly
higher Medicare payments.
It remains a significant concern, however, that in some cases LTCH
admissions are encouraged and facilitated by the referring acute care
hospital to reduce the acute hospital LOS, rather than on the basis of
objective LTCH admission criteria leading to higher numbers of SSO
patients inappropriately admitted to LTCHs. (For this reason, we have
awarded a contract to RTI, discussed in section XII of this final rule,
for the purpose of evaluating the feasibility of establishing such
objective criteria.) We are also concerned that in areas where LTCH
beds are plentiful, the ALOS data indicates that physicians may be less
likely to adhere to objective LTCH admission criteria to reduce acute
care hospital LOS and also to achieve a satisfactory patient
disposition, neither of which are the intended functions of LTCHs.
Comment: Many commenters asked that we not finalize the proposed
SSO policy revisions, stating that the SSO payment option that could
pay the LTCH based on an amount comparable to what would otherwise have
been paid under the IPPS was not based on solid data analysis and
supportable conclusions. In fact, a number of commenters asserted that
the proposed policy was not based on data but rather on ``erroneous and
unsubstantiated assumptions'' that all SSO patients are inappropriately
admitted to LTCHs and inappropriately discharged from acute care
hospitals. The commenters noted that, because of the way in which the
policy was formulated, the percentage of LTCH cases that are paid under
the SSO payment policy was a function of the SSO threshold and the
dispersion of cases above and below the ALOS for the LTC-DRGs, that is,
statistically, the SSO definition at \5/6\ of the geometric ALOS would
necessarily produce approximately 37 percent of cases as SSOs.
Therefore, under the commenters belief that given the regulatory \5/6\
definition of SSOs, which we had not proposed to change, the percentage
of SSO cases was not amenable to change just based upon LTCHs admission
policies. One commenter noted that for a significant number of patients
to fall below \5/6\ ALOS for a LTC-DRG is expected in a LTCH.
Additionally, commenters noted that a case may qualify as a SSO because
the patient has run out of covered days, regardless of the actual LOS
in the LTCH and that in establishing our policy for qualifying as a
LTCH (that is, meeting the average greater than 25 day LOS for a
particular cost reporting period), we have recognized the
``appropriateness'' of including ``total'' rather than just ``covered''
days of a stay, since regardless of the payer, if the patient is still
receiving hospital-level care, the facility is functioning like a LTCH.
For this reason, these commenters urged us to remove such cases from
the calculations we used to develop a SSO payment policy. Some
commenters expressed concerns about the reliability of the data that
underlay our policy proposals and asserted that our proposals are based
on faulty assumptions, insufficient data, and a fundamental lack of
understanding of the valuable care LTCHs provide. Moreover, the
commenters assert that LTCH patients are just not the same type of
patients as acute patients; they believe that our proposed policies
indicate that we are unaware of the distinction between acute care
patients and patients at LTCHs. They further claim that they did not
believe that the public was able to submit meaningful comments to our
proposed policies because of our data flaws, our biases, and the
resulting policies that we proposed.
Response: As stated in the previous response, we believe that we do
have a thorough understanding of the types of cases in which LTCHs
specialize but we are also aware that the vast majority of LTCH
patients are admitted following treatment at acute care hospitals. The
patient's stay at the acute care hospital generated a Medicare payment
under the IPPS, and the subsequent admission to a LTCH, an acute care
hospital with an ALOS of greater than 25 days, will generate an
additional Medicare payment. To protect the Medicare Trust Fund from
what may be inappropriate and/or unnecessary payments, and to ensure
that the program is not paying twice for the same episode of care, we
feel that it is essential that we evaluate those cases that are
admitted for an unusually short stay following an initial treatment at
another acute care hospital to acute care hospitals that specialize in
long-stay care, since that second stay will trigger another Medicare
payment. In MedPAC's June 2004 Report to the Congress, the Commission
stated that, ``* * * Living near a LTCH increases a beneficiary's
probability of using such a facility. For example, living in a market
area with a LTCH quadruples the probability of LTCH use. Being
hospitalized in an acute hospital with a LTCH located within the
hospital also

[[Page 27860]]

quadruples the probability that a beneficiary will use a long-term care
hospital'' (page 125).
Although we acknowledge that our establishment of the \5/6\ of the
geometric ALOS threshold, from a statistical standpoint, will result in
approximately 37 percent of LTCH cases being defined as SSOs, we are
still extremely concerned with the number of cases that are being
treated in LTCHs that fall considerably below the geometric ALOS for
any given LTC-DRG. In fact, as stated previously, in the commenters
various and specific suggestions for how to reasonably and fairly pay
SSOs, the commenters themselves drew a distinction between those cases
that fall within the definition of a SSO but are more in keeping with
the LOS generally associated with a LTCH (for example, a case assigned
to LTC-DRG 482 with SSO threshold of 32.1 days, would still be paid as
a SSO if the patient was treated in the LTCH for 25 days) and those
cases that many commenters referred to as ``Very Short Stay Outliers
(VSSO)'' or ``Very Short Stay Discharges (VSSD).'' In the finalized SSO
policy, described elsewhere in these responses, the payment formula
particularly takes into account our very strong belief that LTCHs are
acute care hospitals that specialize in treating patients requiring
``long-stay'' hospital-level care. The LTCH PPS has been designed and
calibrated to pay specifically for that type of care. Since the
inception of the LTCH PPS, when we established the SSO adjustment (67
FR 5594 through 55995, August 30, 2002) under our payment regulations
at Sec. 412.529, we have provided that if a LTCH treats patients not
requiring a long stay, Medicare pays the LTCH based on the applicable
payment adjustment option, described above. Furthermore, as we revise
the payment options in this final rule for the SSO policy, we continue
to believe that such a payment adjustment is reasonable for all short
stay patients, including those that die shortly after their admission
to the LTCH. The FY 2004 MedPAR data indicates that 43 percent of all
patients that die in LTCHs are deaths that occur within the first 14
days of the stay, with 35 percent of SSO deaths occurring within the
first 7 days following admission. As we have since the inception of the
LTCH PPS, we continue to believe that Medicare payments for those death
cases occurring within the SSO threshold should be determined under the
SSO policy since the length of the patient's treatment in the LTCH did
not utilize the full measure of hospital resources for which the full
LTC-DRG payment was calibrated.
Conversely, our data indicates that of all SSO cases, approximately
60 percent of the discharges are 14 days or less and also that acute
care hospitals treat a significant percentage of patients for longer
than the 5 day ALOS. (In acute care hospitals, paid under the IPPS,
over 20 percent, in the aggregate, of patients that are treated have a
LOS of between 14 and 7 days.) Therefore, as described below, we
believe that the SSO policy that we are finalizing under the LTCH PPS
provides a fair and reasonable payment, in light of the above stated
concerns that the short-term hospital-level care that LTCHs provide for
many SSO cases may be substituting for care that could otherwise be
delivered at acute care hospitals and for which at best, Medicare would
otherwise pay under the IPPS.
Under the new option of our finalized policy, we recognize that, as
the length of a SSO stay increases, the case begins to more resemble a
more ``typical'' LTCH stay and therefore, it is more appropriate for
payment to reflect the amount otherwise payable under the LTCH PPS.
Therefore, we will pay the lesser of 100 percent of the estimated costs
for the discharge, 120 percent of the per diem of the LTC-DRG
multiplied by the LOS, the full LTC-DRG payment, or a blend of the IPPS
comparable per diem payment amount capped at the full IPPS comparable
payment amount, and 120 percent of the LTC-DRG per diem payment amount.
For each day, as the LOS increases, the percentage of the IPPS-
comparable per diem amount will decrease and the percentage based on
the 120 percent of the LTC-DRG specific per diem amount will increase.
Because the formula uses the IPPS-comparable per diem amount, capped by
the full IPPS-comparable amount, for cases with very short lengths of
stay (that is, less than the IPPS ALOS), the IPPS-comparable amount
portion of the blended payment amount would be less than the full IPPS
comparable payment amount. Mathematically, as the LOS reaches the lower
of the \5/6\ SSO threshold or 25 days, the payment under the fourth
option, the blend (that is, zero percent of the IPPS comparable per
diem amount added to 100 percent of the 120 percent LTC-DRG per diem
amount) will be equal to the 120 percent of the LTC-DRG per diem
amount.
Under the LTCH PPS at Sec. 412.507 Medicare will pay for inpatient
care delivered only on those days that the beneficiary has coverage
until the LOS exceeds the SSO threshold and becomes an inlier stay.
Therefore, since the inception of the LTCH PPS for FY 2003, we
established the distinction between ``covered days'' and ``total days''
of a LTCH stay. At the point when a patient's benefits exhaust, the
patient is ``discharged for payment purposes'' and even though the
patient may continue to be hospitalized at the LTCH, Medicare will pay
only for the covered days, with the patient (or the patient's secondary
insurance) being responsible for the remaining days' LTCH costs. For
example, even though a patient could have been treated in an LTCH for
40 days, if upon admission, the patient only had 20 covered days
remaining, for Medicare payment purposes, the stay could qualify as a
SSO, unless the 20 covered days exceeded the \5/6\ threshold for the
LTC-DRG to which the case was grouped, at which point, the stay would
become an inlier stay and a full LTC-DRG payment would be generated.
Several commenters urged us to remove SSO cases occurring as a result
of such lapses of Medicare coverage from our revised SSO policy but
based on our data analysis, we will not be excluding benefit exhausted
cases from the policy. According to FY 2005 MedPAR data, these cases
constitute only 3.31 percent of SSO cases. It has been our policy since
the beginning of the LTCH PPS to count those stays during which
benefits are exhausted as SSOs if the covered portion of the stay is
less than \5/6\ of the geometric ALOS for the DRG. In this way, we
appropriately determine payment based on the part A-covered stay. At
the same time, we continue counting the total days of the stay for
purposes of qualification as a LTCH, because that calculation is
intended to reflect the length of care provided to Medicare
beneficiaries. Our policy, however, of including total days for
Medicare patients to identify hospitals qualifying (or continuing to
qualify) as LTCHs indicates our recognition that conceivably, a
beneficiary may be appropriately treated in a LTCH for example, for 40
days, and yet because the beneficiary had only 5 remaining benefit
days, would be reported in our claims data as a 5-day SSO case. We
would be interested in revisiting this issue and would solicit comments
to that end. For the present, however, since, as noted above, a very
small percentage of SSO cases are caused by beneficiaries exhausting
benefits, the above discussed benefits exhaust cases will continue to
be governed by the finalized SSO policy.
As stated above previously in this section, although we are not
finalizing the proposed SSO payment policy, we will address the
commenters concerns

[[Page 27861]]

questioning the integrity of the data upon which we based our proposed
policy for the IPPS-comparable option to payments under the SSO policy
and who also took great issue with our explanations for the proposed
policy. We believe that the commenters' concerns actually arose from
the anticipated impact of the proposed policy on their LTCHs, since the
issue of the major impact, an estimated 11 percent decrease in, an
aggregate payment, was the underlying concern raised by most
commenters, rather than actual doubts about the accuracy of our data.
We disagree that the public was denied the opportunity for meaningful
comment on our proposed policies, as we will discuss below. Further, we
believe this RY 2007 regulation cycle for the LTCH PPS actually
presents an excellent example of a rule-making experience as envisioned
by the Administrative Procedures Act, and the Secretary's general rule-
making authority as established under section 1871(b)(2) of the Act, as
well as demonstrating our responsiveness to public comment on proposed
policies. Reacting to several of the proposed provisions in the RY 2007
LTCH PPS proposed rule (71 FR 4648), industry stakeholders engaged
consultants, including the Lewin Group and Avalere Health LLC, that re-
analyzed our data used in the development of our proposed policy, as
well as our specific policy proposal for revision to SSO policy. Their
reports and findings were submitted to us along with the industry's
comments on the proposed rule and the reports were frequently quoted by
other commenters. As noted throughout these responses, based upon the
comments and serious proposals that we received (which are listed
above), as well as other information that was provided by stakeholders,
we revisited the proposed policy and in response to those concerns,
have, in fact, not finalized those aspects that the commenters found
the most troubling.
Therefore, rather than stakeholders being prevented from submitting
meaningful comments on the policies in the RY 2007 LTCH PPS proposed
rule, the actual sequence leading up to the finalized payment option
under the SSO policy, exemplifies the objectives of notice and comment
rule-making. As noted above, the resulting comments, have had a
significant impact on our revisiting and revising the proposed policy.
Comment: Two commenters suggested that rather than challenging the
cases that are admitted from acute care hospitals, we should be more
concerned about inappropriate admittances from non-hospital settings
such as SNFs or elsewhere.
Response: In response to the commenters' suggestion that we review
inappropriate admittances from non-hospital settings, after analyzing
recent data, we note that approximately 80 percent of the patients
admitted to the LTCHs come from the short term acute-care hospitals and
only 20 percent are admitted from other non-hospital settings. Since
SNFs do not offer hospital-level care but are still dealing with
patients with compromised health, we believe that generally, a decision
to transport a SNF patient to a hospital, would generally be made
because the patient appears to the medical professionals at the SNF to
be in need of a higher level of medical treatment or care than is
available at the SNF. (In fact, such patients would typically be
admitted to the acute care hospital rather than to a LTCH.) However,
both an acute-care hospital and a LTCH offer acute hospital-level care.
As discussed above, we are very concerned about the treatment of a
short-stay patient who could reasonably and effectively continue to be
treated in an acute-care hospital and paid for under the IPPS, being
admitted unnecessarily to a LTCH, which specializes in treating
patients requiring long-term hospital-level care and paid for under a
PPS which has been calibrated based upon the high resource use
associated with long patient stays. Furthermore, admission of such a
patient could also result in an unnecessary and inappropriate LTCH
hospitalization, which would also result in a second Medicare payment
for what was essentially, one episode of care.
Comment: Several commenters stated that although CMS claimed it had
insufficient data for a one-time adjustment to the standard Federal
rate, and proposed a postponement of this evaluation and potential
policy implementation, we asserted that we had sufficient data when we
proposed the payment revision to the SSO policy. The commenters believe
that if we have insufficient data for the purposes of determining the
former policy, we have insufficient data for the major policy change
signified by the proposed SSO payment policy revision. The commenters
stated that when comparing data from FY 2003 to FY 2004 for SSO cases,
there was a decrease of SSO cases from 48 percent in FY 2003 to 37
percent in FY 2004. Since FY 2004 was the second year of the transition
to full payments under the LTCH PPS and LTCHs were paid using a blend
(that is, 60 percent of payments were based on what would have been
paid under the reasonable cost-based (TEFRA) methodology), commenters
stated that the payment policy incentives we built into the PPS, which
were designed to discourage short stay patients, would not have been
reflected in FY 2004 data. Therefore, several commenters urged that we
reexamine the number of SSOs at the end of the transition or not before
reviewing FY 2005 data which is the first year that more than 50
percent of each LTCH PPS will be based on the Federal rate and impacted
by the SSO payment criteria. The commenters maintained that we will
only be able to determine whether the current SSO payment methodology
is fair after we compare more than one year of cost reporting data post
transition, a valid analysis of facility characteristics and resources
of LTCHs to acute care hospitals for the same DRGs.
Response: We do not believe that the position we have taken in
these two policy areas, establishing a revised payment option for SSO
cases and postponing the one-time adjustment to the standard Federal
rate is inconsistent. Rather, these proposals are based on two
different data sources that have different collection procedures and
different analytic potentials. We believe, for reasons explained below,
that the changes that we have made to the payment options for SSO
discharges are based on credible and sufficient data even though the
transition period to full payments under the Federal rate specified in
Sec. 412.533 is not yet complete. The data, which we utilized when we
designed the SSO policy at the outset of the LTCH PPS for FY 2003
(which is the basis for the 48 percent figure of the ``base year'' SSO
cases) was based on LTCH data generated during FY 2001 when LTCHs were
still being paid under the TEFRA system. Notwithstanding providing for
a 5-year transition and our earlier projections that in FY 2003
payments would be more generous under the blend (that is, we believed
that 49 percent would opt for the blend, whereas 51 percent would opt
for full Federal payments), the DRG-based per discharge payments under
the LTCH PPS provided an incentive so that, based on the data used in
the RY 2005 LTCH PPS final rule from the Provider Specific File at the
close of CY 2003, in fact, we estimated that 93 percent of LTCHs would
be paid fully under the LTCH PPS for RY 2005 (69 FR 25701, May 7,
2004). We believe that this indicates LTCH behavior at that point,
which was in the middle of the second year of the 5-year transition,
was being shaped by the incentives associated with all aspects of the
LTCH

[[Page 27862]]

PPS, from more accurate coding of LTC-DRGs, to the graduated payments
under the SSOs, as well as to the financial advantages inherent in 100
percent payment under the Federal rate. Furthermore, for purposes of
evaluating patient-level data, we use the MedPAR claims files which are
updated quarterly. Therefore, for FY 2004, using the best available
data for the RY 2007 LTCH PPS proposed rule, we were able to determine
that based on 118,525 cases from 337 LTCHs, 10,530 discharges have
lengths of stay of 7 days or less; 16,411 of 8 to 14 days; 36,989 of 15
to 25 days; and 54,595 of greater than 25 days. When we evaluated SSO
data, therefore, we did not base either the proposed revision of the
SSO policy or the finalized policy on isolated data. Rather, we
compared the data from FY 2001, which was used to formulate the LTCH
PPS, and the most recent available LTCH PPS discharge data available at
that time (that is, FY 2004).
At the outset of the LTCH PPS, we established a monitoring
component (discussed in section XI. in this preamble of this final
rule) which operates continually under the direction of our Office of
Research, Development, and Information (ORDI) and provides us with data
analysis and policy input. We will continue to monitor all aspects of
the LTCH PPS, including the SSO policy, particularly in light of the
finalized changes that we are making for RY 2007, focusing on the
impact of our revisions on LTCH behavior. As we noted in the RY 2007
LTCH PPS proposed rule, we would use the conclusion of the 5-year
transition (FY 2007) as a benchmark and for any adjustment under the
one-time adjustment in RY 2008. We plan to conduct a comprehensive
analysis of all of the payment adjustment policies, including our SSO
policy, issued at the inception of the LTCH PPS for FY 2003. This
payment analysis would be conducted to evaluate whether significant
revisions would be appropriate. Moreover, the analysis of cost reports,
and patient and facility characteristics mentioned by some of the
commenters were evaluated as part of the RTI study (which we expect to
be submitted in final form later this year) discussed in section XII of
this preamble.
The proposal to postpone the one-time potential adjustment to the
standard Federal rate is addressed in greater detail elsewhere in these
responses. However, we note that the data source for such an evaluation
would be LTCH cost reports (CMS HCRIS files) and, given that a LTCH is
permitted to submit its cost report within 6 months of the end of the
cost report period, plus the lag time required for typical cost report
settlement involving submission, desk review, and in some cases,
auditing, we did not believe that the October 1, 2006 deadline was
reasonable particularly in light of the potential significance of any
adjustment. Accordingly, we believe that in the context of the need to
make adjustments that will be based on cost report data, it is accurate
to state that the necessary data are not yet available. However, in the
context of the SSO change which is based, in part, on the LOS data
which are derived from claims information from the MedPAR files, those
data are currently available, and therefore, it is appropriate to
finalize that change based on existing data.
Comment: Several commenters suggested that prior to finalizing the
changes to the SSO policy specified in the RY 2007 LTCH PPS proposed
rule, we should first evaluate the impact of the 25 percent rule which
was based on many of the concerns that we expressed regarding movement
of patients prematurely from acute care hospitals to LTCHs.
Response: The regulation that the commenters refer to is ``Special
payment provisions for long-term care hospitals within hospitals and
satellites of long-term care hospitals'' which was implemented for
October 1, 2004, and which focused on high percentages of patients
being admitted to LTCH HwHs and satellites of LTCHs from host acute
care hospitals and which specified payment adjustments, in general, for
discharges in excess of 25 percent. We believe the SSO policy is not
related to the special payment provisions for long-term care HwHs and
satellites of LTCHs which was implemented for October 1, 2004, and
which focused on high percentages of patients being admitted to LTCH
HwHs and satellites of LTCHs from host acute-care hospitals and which
specified payment adjustments, in general, for discharges in excess of
LTCH 25 percent. The SSO policy addresses the appropriate payment
formula for patients with lengths of stay significantly below the
average for LTCHs patients in that LTC-DRG. Therefore, we see no
connection between the two policies and we believe that it is
unnecessary to postpone modifications to the SSO policy.
Comment: A few commenters questioned whether we had considered the
impact of the expanded post-acute transfer rule in formulating the
proposed changes in the SSO policy.
Response: The expanded post-acute care transfer policy, which was
finalized in the FY 2006 IPPS final rule (70 FR 47411), affects DRGs
that have a high volume of discharges to post-acute care facilities and
a disproportionate use of post-acute care services. The purpose of the
policy is to avoid providing an incentive for a hospital to transfer a
patient to another hospital early in the patient's stay to minimize
costs while still receiving the full DRG payment. Although we expect
that policy to have some impact on the discharge behavior of acute care
hospitals because the expanded policy will reduce payments to acute
care hospitals, under the IPPS, for discharges prior to reaching the
geometric ALOS for one of the included DRGs, it does not necessarily
affect the issues being addressed by the SSO policy change. Both of
these policies are ensuring that Medicare payments are appropriate
given the types of treatment provided in each setting. We believe that
the revised payment formula for SSO patients that we are finalizing
will appropriately pay LTCHs for delivering services to patients who do
not otherwise require the lengths of stay that are characteristic of
LTCHs. The SSO policy will address payments to LTCHs for patients
discharged from the acute care hospital even after the geometric ALOS.
Comment: Several commenters believe that we are incorrect that
LTCHs could be admitting patients not requiring long stays, noting that
LTCHs actually have a disincentive to admit short stay patients because
LTCH certification status can be at risk if the hospital does not
maintain an ALOS of more than 25 days.
Response: Under the TEFRA system, all inpatient days (whether
covered by Medicare or not) were included in the LOS computation, and
the mathematical determination was based upon the number of patient
days--during the cost reporting period when they occurred--divided by
discharges occurring during that same period of time (67 FR 55954,
55971). With the establishment of the per discharge LTCH PPS, we
restricted the patient count for purposes of qualifying as a LTCH
solely to Medicare patients (67 FR 55971), and we implemented the
policy of ``days following the discharges,'' under which, if a
patient's stay crosses two cost reporting periods, the total days of
that stay (both covered and non-covered days) would be included in the
computation during the cost-reporting period that the discharge
occurred (69 FR 257405, May 7, 2004).
Our data reveals that the general ALOS of most LTCHs varies only
slightly. Generally, LTCHs maintain an ALOS that is just over 25 days,
meeting the statutory definition of a LTCH, that

[[Page 27863]]

is, having an ALOS of greater than 25 days. Furthermore, we understand
that LTCHs closely monitor their yearly ALOS and that one extremely
long-stay case can mathematically offset for a number of short-stay
cases. From studying the hospital-specific data, we believe that this
is indeed the case for many LTCHs. We also believe that the payment
policy that has been utilized since the start of the LTCH PPS for FY
2003 has not operated as a financial disincentive for the admission of
patients who will not ultimately require long-stay hospital-level care.
In fact, we note that our data shows approximately 27,000 SSO cases
with a LOS of 14 days or less. This indicates that even with over 20
percent of their discharges having such a short ALOS, LTCHs have
maintained their greater than 25-day statutory ALOS. Therefore, we
believe that it is both possible for a LTCH to maintain its designation
and also admit many very short stay cases.
Comment: We received comments requesting that we exempt subclause
(II) LTCHs from the proposed changes to payments for SSO cases, which
under our proposed regulation would be subject for cost reporting
periods beginning on or after October 1, 2006. Because of the unique
mandate established by the Congress for these LTCHs, the commenters
believe that our proposed policy directly threatens the financial
integrity of subclause (II) LTCHs. The commenter noted that for FY
2004, we established a specific exception to the existing SSO policy
because they presented data that indicated that over 50 percent of
their patients would qualify as SSOs because of the Congress'
delineation of their unique census and mission. Therefore, the
commenter states, subclause (II) LTCHs cannot control either case mix
or LOS and most of our concerns about SSOs would be inapplicable to
such LTCHs because of this category of facility's unique services and
programs.
Response: By enacting section 4417(b) of the BBA, and providing an
exception to the general definition of a LTCH as set forth in section
1886(d)(1)(B)(iv)(I) of the Act, the Congress recognized the existence
and importance of a distinct category of LTCHs that might not otherwise
warrant exclusion from the acute care inpatient PPS under subclause
(I). Under this provision, which we implemented at Sec.
412.23(e)(2)(ii), to qualify as a subclause (II) LTCH, a hospital must
have first been excluded as a LTCH in CY 1986, have an inpatient ALOS
of greater than 20 days, and demonstrate that 80 percent or more of its
annual Medicare inpatient discharges in the 12-month reporting period
ending in Federal FY 1997 have a principal diagnosis that reflects a
finding of neoplastic disease. (62 FR 46016 and 46026, August 29,
1997.) Acknowledging the distinction between hospitals qualifying as
LTCHs under section 1886(d)(1)(B)(iv)(I) of the Act (subclause (I)
LTCHs), when we developed the PPS for LTCHs, we revised the greater
than 25 day ALOS criteria to include only Medicare patients for these
subclause (I) LTCHs. However, for LTCHs under section
1886(d)(1)(B)(iv)(II) of the Act (subclause (II) LTCHs), no change was
made to the methodology for calculating the LTCH's ALOS, since ``* * *
we have no reason to believe that the change in methodology for
determining the average inpatient LOS would better identify the
hospitals that Congress intended to exclude under subclause (II)'' (67
FR 55974, August 30, 2002). Consistent with existing policies that
differentiate between subclause (II) LTCHs and subclause (I) LTCHs, we
agree with the commenters that it is reasonable for CMS to consider
whether or not a policy that has been designed for LTCHs designated
under subclause (I) can reasonably and equitably be applied to a
subclause (II) LTCH without some measure of adjustment. Moreover, in
establishing this category of LTCHs, in effect, the Congress limited
its potential case-mix, therein distinguishing it even further from the
larger group of LTCHs. Since the theoretical foundations of a DRG-based
PPS are that where the costs of one case may exceed its payment, the
opposite is also likely to happen, and that where some types of cases
are always very expensive for a hospital to treat, others are, in
general, less costly, it is assumed that hospitals under a DRG-based
system, therefore, can typically exercise some influence over their
case-mix and their services to achieve fiscal stability. This option is
generally not open to subclause (II) LTCHs. According to CMS claims
data for CY 2001, at one subclause (II) LTCH, more than 93 percent of
Medicare patients expired. Over half of the patients at this hospital
would qualify as SSOs (97 percent of those SSOs expired), where others
had extremely long lengths of stay.
By establishing subclause (II) LTCHs, the Congress provided an
exception to the general definition of a LTCH under subclause (I), and
therein endorsed the unique mission of a particular type of hospital.
We do not believe that the Congress intended for policies put in place
for LTCHs described under subclause (I) to undermine the viability of a
LTCH described under subclause (II).
As we evaluated the SSO policy for subclause (II) LTCHs, we believe
that a LTCH in this category may not be able to readily address the
type of patients and the costs it incurs for those patients as would
LTCHs described under subclause (I).
Accordingly, we are not finalizing the specific options to the SSO
policy published in the RY 2007 LTCH PPS proposed rule for a subclause
(II) LTCH. We have revisited the relevant data for subclause (II) LTCHs
attendant upon receiving the comments, and we now believe that
retaining the existing SSO policy with the three current options to
govern Medicare SSO payments at the beginning of their first cost
reporting period beginning on or after October 1, 2006, continues to be
both reasonable and equitable for subclause (II) LTCHs as well as for
the Medicare program. Payments to subclause (II) LTCHs under the SSO
policy, therefore, will be governed by the specific percentages and
schedule at new Sec. 412.529(e)(2)(v). We consider the current
adjustment under the SSO policy for LTCHs designated under section
1886(d)(1)(B)(iv)(II) of the Act and Sec. 412.23(e)(2)(ii) to be a
reasonable and equitable response to the particular situation of a
subclause (II) LTCH under the LTCH PPS.
Comment: Several commenters noted that SSO policy has been a
feature of the LTCH PPS since the start of FY 2003, and, therefore,
payments for care to this population based upon SSO methodology were
anticipated in setting the standard Federal rate. The commenters stated
that to cut SSO payments so radically at this time raises issues
relating to the PPS's budget neutrality and to finalize the SSO policy
without a ``material increase in payment rates for inlier cases,''
casts doubts on the ongoing fairness of the overall payment system.
Response: We believe that commenters' when referring to the budget
neutrality requirement mean a system-wide budget neutrality
requirement. A system-wide budget neutrality requirement means,
specifically, payments under the LTCH PPS are always estimated to equal
estimated system-wide (that is, aggregate) payments that would have
been made under the reasonable cost-based (TEFRA) payment methodology
if the LTCH PPS were not implemented. We disagree with the commenter's
claim that the SSO policy violates the statutory requirement that the
LTCH PPS be budget neutral. We note that under section 123(a) of the
BBRA,

[[Page 27864]]

Congress required that the Secretary develop ``* * * a per discharge
prospective payment system for payment for inpatient hospital services
of long-term care hospitals described in section 1886(d)(1)(B)(iv) of
the Act (42 U.S.C. 1395ww(d)(1)(B)(iv)) under the Medicare program.
Such system shall include an adequate patient classification system
that is based on diagnosis-related groups (DRGs) and that reflects the
differences in patient resource use and costs, and shall maintain
budget neutrality.'' We have interpreted the requirement to ``maintain
budget neutrality'' to require that the Secretary set total estimated
prospective payments for FY 2003 equal to estimated payments that would
have been made under the TEFRA methodology if the PPS for LTCHs was not
implemented. It has been our consistent interpretation that the
statutory requirement for budget neutrality applies exclusively to FY
2003. In FY 2003, we set total estimated LTCH PPS payments for FY 2003
equal to estimated payments that would have been made under the TEFRA
methodology if the PPS for LTCHs was not implemented. Consequently, we
believe that we have satisfied the budget neutrality requirement under
the statute. Moreover, we have broad discretionary authority under
section 123(a)(1) of the BBRA as amended by section 307(b)(1) of the
BIPA to provide appropriate adjustments, including updates. Thus, we
are acting within that broad authority in establishing changes to the
SSO policy beginning in RY 2007.
There are several reasons that we do not believe that the Congress
intended perpetual system-wide budget neutrality. We note below, a
partial list of those reasons. For example, a system-wide budget
neutrality requirement that applies perpetually would affect the
Secretary's ability to operate the prospective payment system for LTCHs
efficiently. To illustrate, if the Secretary were to propose to adjust
payments upward in a particular instance because he finds that payments
are ``too low'', under a perpetual budget neutral system the Secretary
would be forced to reduce estimated payments for other cases to fund
the additional costs associated with the proposed adjustment. However,
this shifting of resources may then cause payments to LTCHs for those
cases that were being reduced to offset the proposed adjustment to then
be inappropriately ``too low.'' We do not believe the Congress intended
such a result for every adjustment that will be made to the LTCH PPS in
perpetuity. Rather, as with all dynamic and evolving systems, we
believe that based upon monitoring and the analysis of data, the
Secretary has the discretion and obligation to formulate polices and
establish payment adjustments that will ensure that the Secretary
continues to pay LTCHs appropriately for beneficiary care.
Also, we note that none of the statutory charges for the other
prospective payment systems (for example, IPPS, SNF PPS, IRF PPS)
require system-wide budget neutrality for perpetuity. We are not aware
of anything unique about LTCHs or the need to establish a LTCH PPS that
would have compelled the Congress to legislate a system that mandates
budget neutrality in perpetuity. Consequently, we do not believe that
in the instant case, the Congress departed from its consistent approach
for budget neutrality and intended to create a statute which applies a
completely different standard to the LTCH PPS.
As noted above, we will not be finalizing the specific IPPS-
comparable payment option that we proposed for SSO cases, but rather
have significantly modified the formula, in large part, because of our
responsiveness to our commenters' concerns. Despite this, we have no
reason to believe that ``inlier'' cases are being ``underpaid'' at
LTCHs. MedPAR data from FY 2003 and part of FY 2004 indicate an
aggregate 16.1 percent margin on LTCH inlier cases. We believe that the
SSO policy that we are finalizing, as described in detail above, is
reasonable and fair, and we see no additional need to increase payments
to LTCH inlier cases as a consequence of this policy.
Comment: We received one comment asking if we considered what would
be the impact on the calibration of the LTC-DRG weights under the
proposed changes in payments for SSOs.
Response: As discussed in the FY 2006 IPPS final rule when we
updated the LTC-DRGs and relative weights (70 FR 47336), the LTC-DRG
relative weights were adjusted for SSOs by using the ratio of the LOS
of the case to the geometric ALOS of the LTC-DRG and does not use the
actual payment amount (or cost) to adjust for SSO cases in the annual
recalibration of the LTC-DRG relative weights. Therefore, the changes
to the SSO policy would have no impact on the LTC-DRG relative weights.
Under the current LTC-DRG relative weight recalibration methodology,
there is no reason for changing how the LTC-DRG relative weights are
computed under the final SSO policy.
Comment: A number of commenters stated that the proposed IPPS-
comparable option for payment under the SSO policy is a violation of
the express will of the Congress in establishing the category of
hospitals that were excluded from the IPPS under section 1886(d)(1)(B)
of the Act. The commenters stated that under that provision the
Congress acknowledged that these excluded hospitals (that is, LTCHs,
IRFs, IPFs, childrens hospitals and cancer hospitals) could not
reasonably be paid under a DRG system that had been designed to pay for
treatment in acute care hospitals under the IPPS. Further, these
commenters stated that we had thwarted the intentions of the Congress
to establish a unique PPS that is specific to LTCHs in subsequent
legislation (that is, the BBRA of 1999 and the BIPA of 2000). The
commenters claimed that the proposed IPPS-comparable option to the SSO
payment policy would be forbidden under these enabling statutes because
such a payment option would ignore the ``differences in patient
resource use and cost'' at LTCHs. One commenter criticized our use of
the phrase ``a payment otherwise comparable to what would have been
paid under the IPPS'' as a disingenuous attempt to side-step the
Congressional mandate that the LTCHs not be paid based on the acute
care IPPS. Therefore, the commenter believes that we violated the
statutory intent that LTCHs be excluded from the IPPS in issuing the
proposed IPPS-comparable payment adjustment under the revised SSO
policy.
A number of commenters cite our proposed policy as a violation of
the Court's two-prong test for validity of a regulation established
under Chevron U.S.A., Inc. v. Natural Resources Defense Counsel, Inc.
467 U.S. 837, 842-843 (1984). Under the ruling, the Court asks whether
the Congress addressed, in clear language, the issue in question and,
if the answer is affirmative, the effect is given to the
``unambiguously expressed intent of the Congress.'' If the ``statute is
silent or ambiguous with respect to the specific issue,'' the Agency's
interpretation is allowed to stand as long as it is based on a
permissible construction of the statute.'' Id at 843. Deference to the
Agency's interpretation is ``only appropriate when the agency has
exercised its own judgment'' and is not based upon an erroneous view of
the law.
Response: In responding to the commenters' claims, we would first
reiterate that we are not finalizing the specifics of the proposed
IPPS-comparable option for payments under the SSO policy. In response
to commenters' concerns and following

[[Page 27865]]

further data and policy analysis we believe that the policy that we are
finalizing in this rule, and described in detail above, fairly
addresses a circumstance that we presume was not envisioned when the
Congress authorized the LTCH designation at section 1886(d)(1)(B)(I) of
the Act (that is, paying for a substantial number of short stay
patients--particularly those with extremely short stays--under a
payment system designed to treat long-stay patients). Moreover, we
believe that the quote used to establish Congressional intent actually
addresses the situation that we faced in determining how to pay for
short stay patients at a LTCH: ``[T]he DRG system was developed for
short-term acute care general hospitals and as currently constructed,
does not adequately take into account special circumstances of
diagnoses requiring long stays'' (Report of the Committee on Ways &
Means, U.S. House of Representatives to Accompany HR 1900, HR Report
No. 98-25, at 141 (1983) Legislative history of the 1983 SS
Amendments). We do not believe that we violated Congressional intent in
either the BBRA of 1999 or the BIPA of 2000 in establishing a payment
adjustment under the LTCH PPS that addresses our concerns about a
significant number of short stay patients being treated at LTCHs. As
indicated previously, section 123 of the BBRA, as amended by section
307(b)(1) of the BIPA confers broad discretionary authority on the
Secretary to implement a prospective payment system for LTCHs,
including providing for appropriate adjustments to the payment system.
This broad authority gives the Secretary great flexibility to fashion a
LTCH PPS based on both original policies as well as concepts borrowed
from other payments systems that are adapted, where appropriate, to the
LTCH context. In the instant case, our finalized SSO policy utilizes,
in large part, principles from the IPPS payment methodology and builds
upon those concepts to create a LTCH PPS payment adjustment that
results in an appropriate payment for those inpatient stays that we
believe could be more appropriately treated in another setting. The PPS
system authorized under both the BBRA and the BIPA emphasized the
specific needs, resource use, costs, and payments for the patients who
required hospital-level care for extended stays. Moreover, the
authority extended to the Secretary by the BIPA included the discretion
to ``provide for appropriate adjustments to the long-term hospital
payment system,'' which, from the inception of the LTCH PPS for FY
2003, we have interpreted to include the establishment of a payment
adjustment for discharges that have lengths of stay considerably less
than the ALOS and that receive significantly less than the full course
of treatment for a specific LTC-DRG'' (67 FR 55995; August 30, 2002).
Rather than our special payments for SSO violating the Congressional
mandate for a distinction between the payment systems for acute care
hospitals and, as according to the committee report cited above,
``diagnoses requiring long stays,'' we believe that our payment
policies are directly in accord with Congressional intent. We further
believe that the new option of the blended payment actually captures
Congressional intent since as the LOS appears to be more typical of the
type of stay for which the LTCH PPS was established, the payment is
based on a decreasing percentage of IPPS-comparable per diem payment
amount while the percentage of payment based on the 120 percent of the
LTC-DRG per diem payment amount increases. Therefore, we believe that
our finalized payment adjustment for SSOs under which one payment
option could be a blend of a percentage of an IPPS-comparable per diem
payment amount that will decrease in direct proportion to an increase
in the LOS and a percentage payment of the 120 percent LTC-DRG per diem
payment amount, which will increase based on the LOS at the LTCH, is
grounded in several existing Medicare payment adjustments. We also
believe that the gradually shifting percentage of the payment blend
recognizes the increasing use of resources and costs as the stay
lengthens, and it is consistent with the Ways and Means Committee's
above-cited definition of ``special circumstances of diagnoses
requiring long stays.''
We disagree with commenters that our LTCH PPS SSO policy that is
based on an IPPS comparable payment amount is a payment under the IPPS.
As indicated in various places throughout the preamble, section 123 of
the BBRA, as amended by section 307(b)(1) of the BIPA, confers broad
discretionary authority on the Secretary to implement a PPS for LTCHs,
including providing for appropriate adjustments to the system. This
broad authority gives the Secretary great flexibility to fashion a LTCH
PPS based on both original policies as well as concepts borrowed from
other payment systems that are adapted, where appropriate, to the LTCH
context. In the instant case, our finalized SSO policy utilizes
principles from the IPPS payment methodology and builds upon those
concepts to create a LTCH PPS payment adjustment that results in an
appropriate payment for those inpatient stays that we believe do not
typically belong in LTCHs but would be more appropriately treated in
another setting. In this final rule, we are further refining our
existing SSO policy. Therefore, we disagree with commenters that the
Secretary is acting in contradiction of the statute and inconsistently
with the Chevron doctrine.
Comment: Several commenters stated that when the Congress
established LTCHs, they were described as hospitals with ``an average
in patient LOS of greater than 25 days'' and that the statute did not
say that cases must stay a ``minimum of 25 days.'' The commenters
stated that the word ``average'' implies half of the lengths of stay
would be below 25 days. The commenters maintained that statements made
by CMS indicate that short stays at LTCHs are inappropriate. However,
the commenter claims that it was clearly the Congress's intent that in
establishing the definition of LTCHs, half of the patients would stay
for fewer than 25 days.
Response: We agree with the commenter that the statutory definition
of a LTCH as a hospital with an ALOS of greater than 25 days allows a
hospital to include short stay patients in meeting the average of
greater than 25 days threshold. However, in both the BBRA and the BIPA,
which authorized the development of the LTCH PPS, the Secretary was
granted considerable authority to examine and to provide appropriate
adjustments to the system. We believe that both in establishing LTCHs
as hospitals excluded from the IPPS and also in mandating the
development of the LTCH PPS, the Congress intended LTCHs to treat long-
stay patients with lengths of stay of approximately 25 days or more.
The specific policies that we have established under the LTCH PPS are
based on our interpretation of what the Congress intended for payment
to LTCHs in the treatment of patients requiring an extended stay that
could result in higher costs to the Medicare program. The SSO policy at
Sec. 412.529 is an example of the premises upon which we developed the
LTCH PPS since it provides for fractional payment of the LTC-DRG to a
LTCH for stays that do not require the full resources typical of LTCHs.
Similarly, the charge data generated from SSOs are given a fractional
weight in setting LTC-DRG weights as opposed to those cases that
generate a full LTC-DRG payment. Given the broad discretionary
authority conferred by the statute to develop the

[[Page 27866]]

LTCH PPS, we do not believe the Congress intended to limit the
Secretary's ability to make adjustment under the LTCH PPS for those
cases that do not receive the full resources of a case in the
respective LTC-DRG.
Comment: One commenter urged us to review how Medicare Advantage
views the use of LTCHs. If a patient covered by Medicare Advantage (MA)
is at risk of deconditioning, according to the commenter, the patient
is sent to a specific LTCH. This is because the prospects for
restoration are increased and, additionally, such a policy also opens
the plan's ICU and overall bed-day utilization rates.
Response: MA plans are required to furnish enrollees with all
medically necessary Medicare A and B services. Accordingly, MA
coordinated care plans must contract with Medicare certified hospitals
to ensure hospital access for its enrollees in the plan's service area.
In some areas where there are cooperating LTCHs, MA organizations may
elect to contract with LTCHs to provide care for their plan members.
However, the terms of these contracts, including payment rates, are
unique for each MA organization, its contracted providers (for example,
LTCHs), and hospitals. Therefore, we are not able to comment on the
particular situation to which the commenter is referring.
Comment: Several commenters stated that the proposed IPPS-
comparable payment adjustment option under the SSO policy created a
strong incentive to ``slow down provision of care'' because by
extending the stay of a SSO LTCH patient by a few days (depending upon
the particular LTC-DRG), a LTCH would receive the full LTC-DRG payment
rather than the least of the proposed SSO formula, which could result
in an IPPS-comparable payment to the LTCH. The commenters believe that
it is in the LTCHs' best interests not to discharge the patient because
the payment difference between the IPPS-comparable payment adjustment
and the full LTC-DRG payment is so significant, particularly for stays
approaching the \5/6\ geometric ALOS threshold. A number of commenters
stated that the proposed payment policy for SSOs actually inverted the
logic of the PPS and rather reinforced the former incentive of cost-
based reimbursement because more profit would be derived from longer
stays. The commenters urged us to reconsider the proposed policy
because they believe it contradicts the fundamental principle of a PPS,
which is to reward efficiency. Several commenters asserted that under
the proposed policy, successfully discharging the patient earlier
because of efficiency and expertise to alternative care settings
results in a financial penalty. Moreover, the commenters claimed this
rewards providers who keep patients through the threshold. Furthermore,
several commenters stated that our proposed revision to the SSO policy
(that is, the IPPS-comparable payment option), which commenters said
would significantly underpay SSO patients, countered the principles of
prospective payment. Other commenters asserted that all PPSs operated
in terms of an ``averaging principle'' which we were violating with the
proposed IPPS-comparable payment option under the SSO policy. One
commenter specified that ``SSO reimbursements are currently providing
the margins that keep overall PPS payments in balance by offsetting
losses on HCOs in particular.'' One aspect of this principle that they
claim we are violating, is that by eliminating the opportunity for
LTCHs to care for patients with costs that are less than Medicare
payments, we are eliminating chances for those LTCHs to overcome losses
by caring for patients whose costs of treatment exceed reimbursement
levels.
Response: We understand the commenters' concerns that our proposed
IPPS-comparable payment option under the SSO policy could extend
patient stays (that is, ``slowing down the provision of care'') to
exceed the threshold and thus be paid a full LTC-DRG payment. In
response to this comment and also to the claim that finalizing such a
policy could have the unintended effect of ``inverting'' the logic of
prospective payments so that an LTCH would reap financial benefits from
longer (perhaps less efficient) stays, we would reiterate that we are
not finalizing the specific proposed policy to which the commenters
refer. We believe that the policy that we are establishing in this
final rule more directly addresses our concerns that the current
payment formula under the LTCH PPS overpays for those very short-stay
SSO cases that could otherwise have been treated in a short-term acute-
care setting, while the final policy provides a higher payment amount
than the proposed policy for SSOs with longer lengths of stay. The
graduated payment scale, which increases the proportion of a LTC-DRG-
based payment while decreasing the proportion of an IPPS-comparable-
based payment, pays appropriately for long-stay cases while not
overpaying for very short SSO stays. Under this finalized policy,
Medicare will be paying more appropriately for the shorter stays that
we believe could otherwise be treated in an acute care hospital while
paying significantly more for those longer-stay cases that more closely
resemble typical LTCH cases. Moreover, we believe that the graduated
per diem increase of payments based on LTC-DRG weights in our final SSO
policy does not penalize LTCHs for effective care that could result in
an earlier discharge. Rather we believe that the policy provides for a
fair payment for the efficiency and expertise that, in the case of an
appropriate LTCH admission, could lead to a discharge that would be
somewhat below the five-sixths SSO threshold and thus be paid as a SSO.
Although we will be monitoring LTCH behavior, it is also our
expectation that this revised policy will provide minimal rewards for
unnecessarily lengthening a stay.
For the commenters that indicated that the SSO policy is
inconsistent with the averaging principle inherent in a PPS, we believe
it is very important to evaluate the adjustment in light of the
following. In a PPS there are numerous principles (for example,
appropriate payment, predictability, averaging, beneficiary access to
appropriate care, equity) that we try to balance simultaneously when
making policy decisions. The averaging principle, while an important
principle in the LTCH PPS, is not the only principle by which we make
our policy decisions. For example, in the case of SSOs and HCOs, we
must determine how to appropriately pay for aberrant cases that are
much shorter (in the case of short stays) and much costlier (in the
case of HCOs) when compared to typical cases in the relevant LTC-DRG.
In the case of short stays, if we failed to adjust the payment to
reflect that the case did not receive the full resources of a typical
LTCH stay for the particular DRG, the PPS payment would be greatly
``overpaying'' for the stay, may serve as an incentive to game the
system, and would waste valuable Trust Fund dollars. Similarly, in the
case of HCOs, if we did not adjust the payment to reflect the
extraordinary high costs that a LTCH was incurring for treating a
particular patient when compared to a typical case in the respective
LTC-DRG, we would be ``underpaying'' significantly for the case. We
have stated that providing additional money for HCOs strongly improves
the accuracy of the payment system as well as reduces the incentive to
under serve these patients (69 FR 55954 and 56022). Since we do not pay
short stays outliers or HCOs an amount paid to ``inliers''/cases that
have lengths of stay or costs commensurate with other cases in the
respective LTC-DRG, but instead make

[[Page 27867]]

payment adjustments to reflect the unique circumstances of these cases,
the averaging principle is less heavily emphasized under these
circumstances to achieve equity, appropriate payments that accurately
reflect resource costs at the patient and hospital level, and
beneficiary access to medical care.
We believe that, given that LTCHs are defined as acute care
hospitals that have an average inpatient LOS of greater than 25 days,
the payment policies under the LTCH PPS appropriately reflect the
averaging principle. That is, where some cases within the inlier range
will have generated relatively lower costs, other cases will generate
higher costs and Medicare will pay a LTCH the same for both less and
more costly cases. The SSO policy, along with the HCO policy, addresses
payments for cases that fall outside the normal types of averaging in
the inlier range in the PPS and ensures that payment for SSO cases is
not greatly in excess of the resources required to treat those cases.
The payment system modeling and data projections that we generated in
developing the revised payment options for SSOs that we are finalizing
in this final rule at Sec. 412.529(c)(4), indicates that our payments
will be consistent with the particular way in which the ``averaging
principle'' is applied to the LTCH PPS, described above. Therefore,
this policy that we are finalizing does not represent a change from the
underlying premise of either the prospective payment or the particular
approach that we used in determining how to pay for short stays at
LTCHs since the outset of the LTCH PPS for FY 2003. We also believe
that this finalized policy should reduce any payment incentive under
the present SSO policy to admit short-stay patients who could otherwise
be treated at short term acute care hospitals paid for under the IPPS.
With regards to the commenters who noted that, ``SSO reimbursements
are currently providing the margins that keep overall PPS payments in
balance by offsetting losses on HCOs in particular,'' we would note
that MedPAR data from FY 2003 and part of FY 2004 also reveal that
payments to LTCHs for SSOs and inliers more than offset losses for HCOs
and, in fact, produces an aggregate average margin of 10.5 percent.
Furthermore, since the HCO threshold decreased from RY 2004 to RY 2005
from $19,590 to $17,864, it is probable that the aggregate margin for
the later period is even higher. Therefore, the policy that we are
finalizing will decrease the margins that our data indicates have
generally been realized by LTCHs for their SSO patients under the
existing SSO payment policy. In large part, these margins have resulted
from excessive payment for those very short-stay SSO cases. However, we
are not finalizing the proposed policy which would have significantly
reduced Medicare payments for all SSO discharges. We believe that the
revised SSO payment policy that we are finalizing addresses our
concerns with excessive payments for very short stay SSO cases while
providing a higher payment amount than the proposed policy for SSOs
with longer lengths of stay.
Comment: One commenter noted that payments under the SSO policy
that we have proposed under the IPPS-comparable option did not account
for cases that are SSOs at LTCHs but would be HCOs at a short term
acute-care hospital. In addition, the commenters state that it is
possible that these cases could qualify as a HCO at a short term acute-
care hospital and still be an SSO at the LTCH.
Response: The commenter's statement is accurate. Although we are
not finalizing the specific proposed IPPS-comparable payment option, we
remain concerned about making appropriate payments to LTCHs and
ensuring that appropriate patient care is what determines admission to
a LTCH. In our reevaluation of our SSO policy, we have expressed
concern that our policy either at the short term acute-hospital or the
LTCH-level may provide an incentive for LTCHs to admit patients from
short term acute-care hospitals once their costs exceed what the
hospital expected Medicare to pay--a circumstance that we did not want
our payment policy to encourage either at the acute care hospital or at
the LTCH. Rather, a patient treated at a short term acute-care hospital
who becomes a HCO patient, upon being stabilized and still continues to
need hospital care, could appropriately be discharged to a LTCH for
post-acute care. In this situation, the patient would have received the
full measure of treatment at the short term acute-care hospital since
the high costs associated with outlier payments are included in the
computations leading to both the establishment of the DRG relative
weights, as well as setting the fixed-loss amount associated with the
HCO threshold. Therefore, the goal of our payment policy is for
Medicare to pay appropriately for the care given to the patient and for
the patient's required level of care to be the determining factor in
hospital admissions.
Comment: Many commenters submitted suggestions for us to consider
as we move to establish both facility and patient-level criteria for
LTCHs as recommended in MedPAC's June 2004 Report to Congress. One
commenter asserted that: Adjustments should not compromise quality of
care to beneficiaries or limit access to services; the payment system
should reward providers that provide high quality, cost efficient care
to Medicare beneficiaries; adjustments should not undermine the
predictive power of the PPS or its efficiency in tying payments to
actual service costs; the payment system should remain as uncomplicated
and transparent as possible to providers; with the exception of very
HCOs, payment policy should never result in payment below cost; and the
payment system should permit providers to achieve reasonable margins as
a basis for implementing technologies and replacing or renovating
existing physical plant or equipment. Another commenter specified that
we should adopt requirements for pre-admission, concurrent and post-hoc
review of the appropriateness of LTCH admissions, as well as require
physician certification (a practice that is required for other
providers) of medical necessity for LTCH services based on guidelines
established by CMS through the notice and comment rulemaking process.
Another commenter urged us to adopt uniform admission and
continuing stay screening criteria to ensure that only appropriate
patients are admitted to LTCHs, noting that some LTCHs use InterQual (a
product of McKesson Provider Technologies) which is the screening
instrument used by the majority of QIOs and that we should require the
use of this or some other instrument. We were also urged to adopt
MedPAC's recommendation and expand the sample of LTCH cases reviewed by
QIOs for admission and continuing stay appropriateness. Several
commenters informed us that an association of LTCHs and a QIO are
developing screening criteria that ensure the severity of illness and
the intensity of treatment is appropriate and valid. One commenter
specifically requested that we change the criteria for LTCH
classification. The recommended changes included measuring and
monitoring LTCH patient characteristics by using a 25-day ALOS and
requiring that at least 50 percent of every LTCH's discharges would be
classified into an APR-DRG severity of illness (SOI) level 3 or 4.
Several commenters addressed the issue of patient outcomes,
specifically whether there is any relationship between higher payments
at LTCHs and improved patient outcomes when the similar patients are
treated in different treatment centers. Many commenters acknowledged
our

[[Page 27868]]

concern about the appropriateness of the ``shortest'' of the short
stays at LTCHs and the payment consequences for the Medicare system but
stated that the focus on clinical and facility level criteria was a
viable alternative, that is, ``* * * provide needed cost savings while
assuring that the clinical determination of proper level of care
continues to be based on medical necessity determination.'' Several
commenters offered to work with Medicare to develop sound and
reasonable criteria that would allow us to tighten clinical criteria
appropriately. It was suggested that we work with industry to develop a
consensus on patient assessment and placement criteria. Several
commenters asserted that the proposed policies do not address the real
problems cited by CMS regarding the growth of the LTCH industry and the
behavior of some operators. The commenters warned that these problems
will continue until we have established facility and patient level
standards. One commenter noted, ``[U]ntil this occurs, too many
operators will continue to find ways to admit low acuity patients and
capture a payment mechanism that was carefully developed to serve
complex, high acuity patients. This will continue to offer the high
profit margins that drive the rapid growth of LTCHs.''
Response: We thank the commenters for sharing their thoughts on the
future of the LTCH PPS, the direction we should follow to assure the
highest level of patient care, admission and treatment of appropriate
patients at LTCHs, and fair payment policies. We note that LTCHs are
certified as acute care hospitals but are classified as LTCHs for
payment purposes. We believe the commenter means to address the issue
of classification. In response to the commenters that specifically
requested that we change certification criteria for LTCH
classification, we note that such action may require legislative
action. Recommendations that we focus on the relationship between
patient outcomes and payments and appropriate placement and assessment
criteria echo some of the major issues that we have asked RTI to study.
We are aware of McKesson Provider Technologies' screening instrument,
InterQual, and its use by many QIOs as well as LTCHs, and we have been
informed of the work being done by individual hospital groups and
hospital associations to develop other instruments. (Suggestions
regarding the roles of QIOs in evaluating LTCH admissions are addressed
elsewhere in these responses.) We appreciate the statements made by
many commenters in support of concerns underlying many of our policies
and for the overall goals of our regulations. We believe that we have
been accessible to providers and we thank them for their offers to
participate in further discussions on the development of criteria.
Moreover, we also support the strengthening of pre-admission provider
certification criteria for LTCH admissions and any other criteria that
better define medically complex patients for the purpose of
distinguishing them in terms of appropriate level of care. We believe
that many of the issues raised by commenters will be addressed in RTI's
final recommendations, which we expect to be submitted in the late
Spring of 2006. We further believe that under the revised SSO policy
blend option that we are finalizing in this final rule, the Medicare
program will pay for short stay cases under a fair, equitable, and
reasonable methodology which will not undermine patient access to
LTCHs, should not result in any compromise in the quality of care
offered by LTCHs, and will not undermine either the principles nor the
predictive power of the LTCH PPS.
Comment: MedPAC commented that they share our concerns about short
stay patients in LTCHs. However, MedPAC found that our proposed
revisions to the SSO policy ``too severe'' because they believe that
over time the policy would continue to affect a large percentage of
admissions regardless of the admission policies of LTCHs. Furthermore,
MedPAC does not believe that our proposed policy addresses the
underlying problem of LTCHs which is the lack of patient and facility
criteria, including national admission standards (such as specific
clinical characteristics and treatments), as well as discharge
criteria. MedPAC notes facility characteristics could include
requirements for multidisciplinary teams, and a requirement that a
percentage of cases meet established SOI criteria. MedPAC urged us to
move forward with their recommendations for the development of this
criteria, outlined in the June 2004 Report to Congress (which they
understand is the goal of RTI's work). MedPAC believes moving in this
direction would better provide appropriate care to beneficiaries who
need the level of care provided by LTCHs.
Response: We thank MedPAC for supporting our goals regarding short
stays at LTCHs. As noted above, we are not finalizing the proposed
policy. Rather, we have developed a policy which we believe will
eliminate many of the incentives to admit inappropriate patients whose
very short stays do not require the full resources of a LTCH. We agree
with MedPAC's assertions that evaluating the development of patient and
facility criteria, and the establishment of national admission
standards including clinical characteristics and treatments, as well as
discharge criteria, are of central importance. Our contract with RTI,
discussed in section XII of this final rule, focuses on the feasibility
of implementing MedPAC's June 2004 Recommendations and, as noted above,
we expect the final report to be submitted in the late Spring of 2006.
Comment: One commenter, acknowledging CMS's and MedPAC's concerns
about the continued growth in the numbers of LTCHs and significant
increases in costs to the Medicare system, suggested a moratorium on
the establishment of new LTCHs. The commenter noted that most likely
this may require legislative action.
Response: We thank the commenter for supporting our general
concerns. A moratorium on the development of new LTCHs may require
action by the Congress.
Comment: One commenter stated that the proposed SSO policy dictated
that all SSO cases were inappropriate admissions to LTCHs, and that our
position is antagonistic to QIO procedures and standards, defeats
important patient rights, and directly interferes with professional
judgment of clinicians. The commenter believes that the proposed rule
dictates that all SSO cases should remain in an acute care hospital
setting which gives rise to notice of non-coverage issues and that in
such instances, we may be required to send a notice of non-coverage
under existing regulations and manuals.
Response: We would point out that the proposed IPPS-comparable
option of the SSO policy to which the commenter is objecting is not
being finalized. Rather, after the consideration of comments, we are
finalizing a policy that we believe pays fairly for longer stays that
still qualify as SSOs but yet does not provide a financial incentive
for inappropriately admitting of the shortest of stays. We continue to
believe that LTCHs were established by the Congress to provide
hospital-level care for long stay patients, that is, patients requiring
hospital-level care for an average Medicare inpatient LOS of greater
than 25 days. There has been no intent by CMS to establish a rule
restricting LTCH admissions to ``defeat important patient rights'' or
to otherwise interfere with the judgment of physicians. Rather we seek
to encourage the admissions of patients generally

[[Page 27869]]

requiring the type of care associated with LTCHs and to pay
appropriately for care and treatment provided to these patients. While
we had previously discussed the role of QIOs regarding the LTCH PPS, we
would also emphasize that, presently, there is no review of hospital-
level care that distinguishes whether care should be delivered at a
short-term acute-care hospital or at a LTCH, as long as the care is
appropriate. Both are certified under Medicare to provide acute care
inpatient hospital services.
Under our QIO program, QIOs compare services to standards of care
to determine whether services are reasonable and medically necessary,
whether the quality of services meets professionally recognized
standards, and whether services in an inpatient hospital or other
inpatient health care facility could, consistent with the provision of
appropriate medical care, be effectively provided more economically on
an outpatient basis or in an inpatient facility of a different type. We
have not historically interpreted any of these areas of review to
involve determinations of which kind of acute care facility would be
appropriate, and we do not regard short term acute-care hospitals and
LTCHs as facilities ``of a different type.''
We disagree with the commenters' statements regarding notices of
non-coverage. We are not determining that treatment of a short-stay
patient at a LTCH is a non-covered service. We are also not requiring
possible SSO patients to remain in short term acute care hospitals.
Rather, we are ensuring appropriate payments for the care of SSO
patients under the LTCH PPS. A notice of non-coverage is generally
issued when a patient disagrees with being discharged from an acute
care hospital to a SNF, despite a medical determination that hospital-
level care is no longer appropriate. The patient, at that time, may
exercise the right to have the QIO review the proposed discharge to
determine whether the discharge from the hospital is appropriate.
However, if a Medicare beneficiary disagrees with being discharged from
a short term acute-care hospital to a LTCH, no notice of non-coverage
would be issued because there is no change in the level of care (both
are certified as acute care hospital providers). There is no need for
the QIO to review the appropriateness of the discharge.
Comment: Several commenters believe most LTCH admissions are based
on InterQual criteria, also used by most QIOs, and that the use of
these criteria has led to a significant drop in SSO cases. (InterQual
is a product of McKesson Provider Technologies which is the screening
instrument used by the majority of QIOs.) These commenters stated that,
in our proposed rule, we discussed a QIO sampling of 116 LTCH records
(selected on a monthly basis) and noted the resulting determination
that 29 percent of the LTCHs' admissions were not medically necessary,
that is, did not require hospital-level care, but also noted as well
that this finding was not characteristic of most LTCHs. In contrast,
individual commenters noted that QIO reviews of a sample of LTCH cases
at specific LTCHs or of LTCHs that are part of a LTCH corporation
reveal that in three separate evaluations, 1.1, 1.6, and 1.0 percent,
respectively, of the samples were denied for lack of medical necessity
or for inappropriate admission. The commenters further asserted that we
have no basis to say that the number of SSOs should be reduced further
since their admissions were evaluated under ``widely-accepted,
objective criteria.'' In fact, the commenters stated there was a drop
in SSOs of 30 percent, indicating that LTCH PPS incentives are working
and CMS should target cases, following a meaningful analysis of data
that reveal inappropriate admissions to LTCHs. Focusing on an expanded
role for QIOs, as recommended by the MedPAC June 2004 Report to
Congress, two commenters suggested that since there will be no update
in the standard Federal payment rate under the LTCH PPS, that we assign
available funds for increased QIO reviews.
Response: We appreciate that several commenters noted that there
had been a decrease in the number of SSO cases since the start of the
LTCH PPS for FY 2003. Some of the commenters pointed out that the
change can be attributed to our present policy that endorses our
general goal of reducing the number of cases admitted to LTCHs since
some could be effectively treated at short-term acute care hospitals.
While we are aware of the use of admission criteria, including
InterQual, by a large percentage of LTCHs and believe that although
these instruments may provide a significant service regarding base-line
admission determinations at LTCHs, we also understand that such
instruments focus on the distinction between acute care and sub-acute
care, that is, SNF-level of care, and determinations of ``medical
necessity'' or ``inappropriate admission'' are based only on whether
the patient should be hospitalized, rather than on whether the
hospitalization should occur at a LTCH or at a general acute care
hospital. Although we know there are products in the marketplace that
are targeted to the LTCH population, our review of the criteria used by
those products did not assure us that the criteria clarifies any
specifics other than whether the patient needs acute hospital-level
care. As explained earlier, we have revised the proposed IPPS-
comparable option of the SSO policy and we believe that the finalized
policy, described in detail above, provides a fair and reasonable
payment for LTCHs treating SSO patients. Moreover, we believe that the
policy reflects our belief that as the LOS of a particular patient
increases, the stay begins to resemble the type of stay envisioned by
the Congress when the LTCH payment classification was established in
1983.
In response to commenter's assertions about the QIO's present
responsibility regarding LTCHs, we believe that it is appropriate to
clarify the work that QIOs currently perform in the Medicare program.
Under Sec. 412.508, the QIOs function in LTCHs parallel their
functions with short-term acute care hospitals. Prior to the
implementation of the LTCH PPS for FY 2003, there was no QIO role
regarding medical necessity and coding of LTCH claims (FIs were tasked
with that activity and until January of 2004, when appropriate
procedures were in place, QIOs only performed retrospective reviews in
LTCHs for quality of care). QIOs are empowered by statute to determine
if Medicare-covered services are medically necessary and provided in
the appropriate setting, specifically, a hospital as opposed to a SNF.
Since January 2004, we have selected and QIOs have reviewed an
annual national random sample of 116 LTCH records per month
(approximately 1400 cases total per year), quoted by a number of
commenters. Recent analysis of the 2004 sample revealed that 17.4
percent of LTCH claims were determined to be payment errors and 5.9
percent of the claims were determined to be admission denials. This
sampling represents the QIO's role of retrospective review (for
example, ``At the time of admission, did the patient require an acute
level of care and was Diagnosis Related Group (DRG) coding correct?'')
If a LTCH admission was determined not to be medically necessary or not
in the appropriate setting, the result of the review could be a
recovery of funds by the Medicare program. In addition, if ICD-9-CM
coding was determined to be incorrect, the claim would be adjusted to
reflect the correct coding, whether that meant an increase or a
decrease in payment.
A QIO uses criteria, based on typical patterns of practice in the
QIO's review

[[Page 27870]]

area for the review setting. For example, if a patient in a particular
state requires acute psychiatric care, then the screening criteria
should be acute inpatient psychiatric criteria. The QIOs also consult
with a physician(s) and practitioner(s) actively engaged in practice in
that state and to the extent possible, a specialty match, when making
the determination that care was or was not medically necessary.
Although a QIO review can detect whether or not the patient requires an
acute level of care or whether care in a SNF would be appropriate,
since both acute care hospitals and LTCHs are certified as acute care
hospitals, QIOs do not make the distinction between whether a patient
should be hospitalized at an acute care hospital or at a LTCH, so long
as the patient requires an acute level of care.
QIOs are authorized by statute to determine whether, in case such
services and items are proposed to be provided in a hospital or other
health care facility on an inpatient basis, such services and items
could, consistent with the provision of appropriate medical care, be
effectively provided more economically on an outpatient basis or in an
inpatient health care facility of a different type as specified in
section 1154(a)(1)(C) of the Act. Therefore, QIOs have authority to
determine the appropriate hospital-level setting in the face of
objective criteria. But there is no objective criteria distinguishing
between settings where acute care is delivered. Since the statute
states ``a facility of a different type,'' because short term acute
care hospitals and LTCHs are very similar and provide the same level of
care, CMS has at no time interpreted ``a facility of a different type''
in section 1154(a)(1)(C) of the Act to mean that QIOs must distinguish
between them.
In a memorandum issued to the Regional Offices, Chief Executive
Officers, and all QIOs, from the Director of the Quality Improvement
Group of the CMS Office of Clinical Standards on October 28, 2004,
among other matters, the following policy was further clarified:

``Note: there are different provider types that may offer the
same level of intensity of inpatient care. QIOs do not specify which
provider type should be used when the level of intensity is the
same. For example, a patient requires an acute level of care that
could be delivered in a short-term acute care PPS hospital, a long-
term care hospital or an acute rehabilitation hospital. The QIO
determines what intensity of care is appropriate (that is, the
patient requires an acute level of care) but would not specify as a
matter of admission necessity which provider type the patient should
be admitted to. If the QIO determines that there is a quality of
care concern implicated, that issue should be addressed through the
quality review process.''

Under current contracts, QIOs review LTCH cases under the following
circumstances: When a claim is selected for purposes of determining or
lowering the payment error rate; if there is a QIO-identified need to
perform additional review based on their contractual responsibilities;
if there is an immediate appeal of certain beneficiary notices; as a
result of the referral of a case or cases; or when there is a
beneficiary complaint or other quality of care concern.
Since one of the recommendations made by MedPAC in their June 2004
Report to Congress was for an increased role for the QIOs in monitoring
criteria to assure that LTCHs are treating appropriate patients,
researchers from RTI have been in contact with several QIOs nationwide
in order to evaluate their role. Any attempt, however, to involve QIOs
in the on-going determination of the appropriateness of admissions,
continuing stay or discharge for a significant proportion of LTCH
patients was never envisioned when the QIO program was established.
There will not be a reassignment of Medicare funds to QIOs from the
LTCH PPS.
Comment: One commenter expressed concern that if our proposed
policy revision for SSOs is finalized, FIs will not have sufficient
time to make necessary system changes to process payment and
substantial payment delays to providers will result.
Response: As noted above, we are not finalizing the specific
proposed IPPS-comparable payment revision to the SSO policy, and in the
previous responses, we have described the policy that we are finalizing
for RY 2007. In response to the commenters' concerns, we have been
assured by our systems analysts that there should be no delay in the
processing of claims under the final policy.
Comment: One commenter asserted that the high cost of Medicare
payments is directly related to high physicians' billing. Therefore,
the commenter suggested that rather than reducing payments to LTCHs
through our proposed SSO payment policy, Medicare should consider a
limit on physician inpatient billing.
Response: This comment is beyond the scope of this regulation.
Comment: Several commenters noted that payment issues for post
acute care hospital-level providers cut across provider types and urged
us not to ``operate in a silo,'' by allowing competition among such
providers for patients without clear clinical guidelines as to what
would be the most appropriate setting for the patient. Another
commenter asserted that the RTI study could serve as the basis for an
in-depth discussion between CMS, physicians, LTCHs, and patients
regarding how to address our broader concerns in a fair, fiscally sound
manner.
Response: We understand and share the concerns expressed by these
commenters. Although the central focus of the RTI study is to determine
the feasibility of establishing LTCH-specific patient and facility-
level criteria, a comprehensive evaluation required our researchers to
analyze claims from alternative providers such as acute care hospitals,
IRFs, IPFs, and also SNFs since many patients who could otherwise be
treated at LTCHs receive treatment or care in one of those alternative
settings. In the RY 2007 LTCH PPS proposed rule, we included a
substantial portion of RTI's work in this area (71 FR 4704 through
4726). The RTI report (discussed in section XII of this final rule)
should be finalized by late Spring 2006 and we are expecting the final
report to provide us with further information and recommendations on
the particular issues raised by the commenters. In general, we believe
that we have been very responsive to the LTCH industry while conducting
this analysis, responding to specific concerns as well as meeting with
physicians, representatives, and LTCHs, and their representatives
throughout the year. Once we have evaluated the results of RTI's final
report, we will make the findings available to the public. These
findings will serve as the basis for future conversations between CMS
and the public.
Comment: Some commenters submitted very specific comments
describing the essential role that LTCHs play in their continuum of
health care, and warning of negative consequences should LTCHs be
forced to close as a result of our proposed SSO payment adjustment.
Response: As previously stated in this final rule, we have decided
not to finalize the proposed IPPS-comparable payment option to the SSO
policy. Rather, we believe that the finalized policy will provide
appropriate payment for SSO patients at LTCHs. We understand the
important care that is rendered at LTCHs and the significance of these
facilities in their individual communities, as well as the impact that
a successful LTCH stay can have on the life of patients and families.
We believe

[[Page 27871]]

that in our finalized SSO policy we have addressed the basic goals of
refining our payment policies under the LTCH PPS to ensure that
Medicare beneficiaries receive high quality medical care in an
appropriate provider setting, and that Medicare renders payment that
reflects fair and reasonable payment for that care.
Comment: One commenter noted the important role that LTCHs may have
to play in the event of an avian influenza pandemic because of their
significant ventilator capacity and urged us to not hamper the ability
of LTCHs to serve as important components in our national public health
response system by finalizing the proposed SSO policy.
Response: We believe that the policies established in this RY 2007
final rule, including the SSO payment policy revision, will result in
LTCHs being unable to continue to provide hospital-level care,
particularly in the areas of their expertise, such as treating patients
requiring ventilator care. In the event of a national public health
response, we would expect that LTCHs will continue to function in an
appropriate manner providing necessary and appropriate health care to
their communities.
b. Changes to the Determination of Cost-to-Charge Ratios (CCRs) and
Reconciliation of SSO Cases
In the June 9, 2003 IPPS outlier final rule (68 FR 34507), we
revised the short-stay policy at Sec. 412.529 (and the HCO policy at
Sec. 412.525(a)) because, as we discussed above in this section, we
believed that the SSO (and HCO) policy are susceptible to the same
payment vulnerabilities that became evident under the IPPS, and
therefore, merited revision. Therefore, in the regulations under
existing Sec. 412.529(c)(5)(ii) and (iii), we established a policy for
the determination of LTCH CCRs and the reconciliation of SSO payments,
for discharges occurring on or after August 8, 2003 (Sec.
412.529(c)(5)(ii)) and October 1, 2003 (Sec. 412.529(c)(5)(iii)),
respectively. (As noted above in this section, in that same final rule,
we established the same changes to the HCO policy at existing Sec.
412.525(a)(4)(ii) and (iii).)
In the RY 2007 LTCH PPS proposed rule (71 FR 4674 through 4676, and
4690 through 4692), we discussed our current methodology for
determining hospitals' CCRs under the LTCH PPS HCO and SSO policies,
and we presented a proposal to refine our methodology for determining
the annual CCR ceiling and statewide average CCRs. In that same
proposed rule, we also discussed our existing policy for the
reconciliation of LTCH PPS HCO and SSO payments along with our proposal
to codify in subpart O of part 412 those policies, including proposed
modifications and editorial clarifications to those existing policies.
Historically, annual updates to LTCH CCR ceiling and statewide
average CCRs have been effective October 1, and in the RY 2007 LTCH PPS
proposed rule, we proposed revisions to the policies governing the
determination of LTCHs' CCRs and the reconciliation of HCO and SSO
payments which would be effective October 1, 2006. In addition, we
stated that the LTCH CCR ceiling and statewide average CCRs reflecting
the proposed policy changes, which would be effective October 1, 2006,
would be presented in the annual IPPS proposed and final rules.
As noted above in section V.D.3.b. of this preamble, we received a
few specific comments concerning the proposed changes to the policies
governing the determination of LTCHs' CCRs. Several other commenters
referenced one of the specific comments on the proposed changes to the
methodology for determining LTCH CCRs in their own comments on the RY
2007 LTCH PPS proposed rule. Based on a commenter's synopsis of our
proposed changes concerning the determination of LTCH's CCRs, we
believe that the commenters clearly understood the nature and purpose
of the proposed changes. However, the commenters pointed out that, in
the RY 2007 LTCH PPS proposed rule, we did not provide an analysis of
the effect of the proposed change, nor did we provide an example of the
new CCR values under this proposed methodology. Another commenter did
not ``object in concept to the proposed combination of [IPPS] operating
and capital cost-to-charge ratios'' to compute a ``total'' CCR for each
IPPS hospital by adding together each hospital's operating and capital
CCR from which to compute the LTCH CCR ceiling and applicable statewide
average CCRs. However, the commenter also pointed out that we did not
provide any impact data and requested that we defer adoption of the
proposed change until such data are provided for comment. Therefore, in
the FY 2007 IPPS proposed rule (71 FR 24132 through 24136), we again
proposed these same changes to the policies governing the determination
of LTCHs' CCRs and the reconciliation of HCO and SSO payments that we
proposed in the RY 2007 LTCH PPS proposed rule. We note that in the FY
2007 IPPS proposed rule, we also tried to further clarify our
explanations of our proposed method for calculating the CCR ceiling and
statewide average CCRs under the LTCH PPS. Consequently, although the
policy proposal presented in that proposed rule is the same as the
proposal presented in the RY 2007 LTCH PPS proposed rule, the
explanations have been further simplified where possible. Along with
that proposal, we also included in that IPPS proposed rule the values
of the proposed LTCH CCR ceiling (1.131) and the proposed statewide
average LTCH CCRs (as shown in Table 8C of the FY 2007 IPPS proposed
rule; 71 FR 24377) that would be effective October 1, 2006, based on
our proposed policy changes (along with the proposed values of the LTCH
CCR ceiling and statewide average CCRs that would be determined under
our current methodology). Therefore, in this final rule, we are not
finalizing any changes to the policies governing the determination of
LTCHs' CCRs or the reconciliation of LTCH PPS HCO and SSO payments. We
will respond further to any comments received on the proposal
concerning changes to the policies governing the determination of
LTCHs' CCRs and the reconciliation of LTCH PPS HCO and SSO payments
presented in the FY 2007 IPPS proposed rule (71 FR 24125 through 24136)
in the FY 2007 IPPS final rule that will be published this summer.
As we discuss above, we are revising Sec. 412.529 of the existing
regulations based on the changes we are establishing to the SSO payment
formula in this final rule. Since we are not finalizing any changes to
the policies governing the determination of LTCHs' CCRs or the
reconciliation of SSO payments, the changes we are making to Sec.
412.529 in this final rule reflect our existing policy regarding the
determination of LTCHs' CCRs and the reconciliation of SSO payments.
Also as discussed above, in the FY 2007 IPPS proposed rule, we again
proposed changes regarding the determination of LTCHs' CCRs and the
reconciliation of LTCH PPS SSO payments under Sec. 412.529(c) based on
the existing regulatory language in Sec. 412.529. We note that, to the
extent the policy changes we proposed in the FY 2007 IPPS proposed rule
regarding the determination of LTCHs' CCRs and the reconciliation of
SSO payments are implemented, we may need to make conforming changes to
the regulatory language in Sec. 412.529 in the FY 2007 IPPS final rule
to ensure that any such changes are consistent with (and do not
contradict) the changes we are making to Sec. 412.529 in this final
rule.

[[Page 27872]]

2. The 3-day or Less Interruption of Stay Policy
In the RY 2005 LTCH PPS final rule, we revised the definition of an
``interruption of a stay'' at Sec. 412.531(a) by establishing two
distinct categories, ``[a] 3-day or less interruption of stay'' at
Sec. 412.531(a)(1) and ``[a] greater than 3-day interruption of stay''
at Sec. 412.531(a)(2). The payment features of the ``greater than 3-
day'' policy itself apply beginning with day 4 once the ``3-day or
less'' policy no longer applies.
The 3-day or less interruption of stay policy is defined at Sec.
412.531(a)(1) as ``a stay at a LTCH during which a Medicare inpatient
is discharged from the LTCH to an acute care hospital, IRF, SNF, or the
patient's home and readmitted to the same LTCH within 3 days of the
discharge from the LTCH. The 3-day or less period begins with the date
of discharge from the LTCH and ends not later than midnight of the
third day.'' As discussed in detail in the RY 2005 LTCH PPS final rule
(69 FR 25691 through 25700), there are several components to the
payment for the 3-day or less interruption of stay.
First, subject to Sec. 412.531(b)(1)(ii)(A)(1) and
(b)(1)(ii)(A)(2), only one LTC-DRG payment will be made to the LTCH for
the patient who is discharged from the LTCH to an acute care hospital,
IRF, SNF, or patient's home and readmitted to the same LTCH within 3
days. Secondly, under Sec. 412.531(b)(1)(ii)(A)(2), any tests or
medical treatment, either inpatient or outpatient, provided at an acute
care hospital or an IRF, or at a SNF and not otherwise excluded under
Sec. 412.509(a), must be provided by the LTCH ``under arrangements''
if the patient is readmitted to the LTCH within 3 days. We established
a time-limited specific exception to the ``under arrangements''
requirement during the RY 2005 LTCH PPS, at Sec.
412.531(b)(1)(ii)(A)(1), in the event that the treatment at the acute
care hospital was grouped to a surgical DRG under the IPPS (69 FR 25696
through 25700).
We also stated that, in addition to having sufficient data to
decide upon continuing the exception, we would evaluate whether
additional refinements to the overall 3-day or less interruption of
stay policy were warranted (69 FR 25697). In the RY 2006 LTCH PPS final
rule, we extended for RY 2006, the surgical DRG exception to the 3-day
or less interruption of stay policy because, as we stated, ``[t]he 3-
day interruption of stay policy was first implemented on July 1, 2004,
and, therefore, we do not yet have sufficient data to accomplish the
above evaluations * * *''. We continued, ``we will be analyzing claims
data over the next year to determine whether the surgical DRG exception
to the `under arrangements' feature of the 3-day or less interrupted
stay policy is actively accomplishing our goal of reducing unnecessary
Medicare payments and to deter inappropriate Medicare payments while
not compromising beneficiary access to medically necessary services. We
believe that we will have sufficient data to evaluate continuation of
the exception and also whether additional refinements to the overall 3-
day or less interruption of stay policy are warranted'' (70 FR 24206).
We also specified that we were particularly interested in analyzing
data from LTCHs to determine whether there was a significant increase
in interruptions of 4-days since the establishment of the policy. To
the extent interruption of stay had increased to at least 4 days (one
day past the 3-day threshold that would prevent the 3-day or less
policy from being triggered), we believed that this behavior could
indicate inappropriate efforts to side-step the provisions of our 3-day
or less interruption of stay policy.
As part of our on-going monitoring program (as discussed in Section
XI. of this final rule), ORDI analyzed claims from the MedPAR files for
LTCH discharges from July 1, 2004 through June 30, 2005 and performed
the data analysis necessary to evaluate the impact of the surgical DRG
exception to the 3-day or less interruption of stay policy. As shown in
Table 12, the data revealed the following for the RY 2005 LTCH PPS.

Table 12
------------------------------------------------------------------------

------------------------------------------------------------------------
Total LTCH discharges.............................. 120,895
Total covered charges.............................. $8,694,137,026.00
Average covered charge............................. $71,855.00
Total cases assigned an IPPS Surgical DRG at an 459
acute care hospital...............................
Average covered charge for:
DRGs Non-surgical.............................. $18,103.00
DRGs Surgical.................................. $22,429
Total covered charges for surgical stays........... $10,294,925
------------------------------------------------------------------------

The data does not convince us that a continuation of the surgical
DRG exception to the 3-day or less interruption of stay policy is
warranted. We believe that the data cited above support the following
conclusions:
The surgical cases that fell within this exception are
present in only a small fraction of LTCH hospitalizations and that,
therefore, they were neither numerous nor would they be significantly
costly for LTCHs to cover ``under arrangements;''
The surgical DRGs for which Medicare claims were submitted
by the acute care hospital appear to support, in large part, our
original hypothesis that if a LTCH patient was discharged to an acute
care hospital for only 1, 2, or 3 days, followed by a readmission to
the LTCH, there could be reason to believe that the treatment
delivered, even if it was grouped to a surgical DRG, was not a major
procedure because of the relatively short LOS at the acute care
hospital, and, therefore, should have been provided ``under
arrangements.''
We note that after a reasonable and systematic examination of the
data mentioned above, there are 459 surgical DRGs (less than 0.4
percent of all cases). Additionally, the data revealed that the
specific surgical DRGs into which the acute care treatments were
grouped appear to arise directly from the principal diagnoses at the
LTCH, a concern that we originally stated in the January 30, 2004
proposed rule for the LTCH PPS when we described the ``under
arrangements'' feature of the proposed 3-day or less interruption of
stay policy (69 FR 4771).
Table 13 shows examples drawn from the above cited subset of claims
for July 1, 2004 through June 30, 2005.

[[Page 27873]]

Table 13
------------------------------------------------------------------------
LTC-DRG DRGs
------------------------------------------------------------------------
182 (Esophagitis gastroenteritis, and 17 Other Digestive system
miscellaneous other digestive operating room procedures.
disorders>17 w/cc.
271 Skin Ulcers........................ 270 Other skin, subcutaneous
tissue and breast procedures w/
cc.
348 Prostatitis........................ 336 Trans-urethral
prostatectomy.
87 Pulmonary edema and respiratory 55 Miscellaneous ENT, mouth, or
failure. throat procedures.
418 Post-operative and post traumatic 415 Operating room procedure
infections. for infectious or parasitic
diseases.
144 Other circulatory system diagnosis 120 Other circulatory system
w/cc. operating room procedures.
------------------------------------------------------------------------

The basic premise of a PPS recognizes that Medicare pays hospitals
an amount per discharge based on the average costs of delivering care
for that diagnosis (which is assigned a DRG), and that some cases
require more hospital resources to be expended, where others, require
less. Therefore, in some cases, Medicare payments will be lower than
the hospital's costs, but in other cases, the payments will exceed the
costs. In the January 30, 2004, LTCH PPS proposed rule, we stated that
surgical treatment that is directly related to the principal diagnosis
at the LTCH and which only required 3 days or less of care at the acute
care hospital, should be provided by the LTCH either directly or
``under arrangements'' since Medicare payment to the LTCH for this
particular case was ``payment in full'' as specified in Sec.
412.509(b) (69 FR 4771). It has been standard Medicare PPS policy for
over two decades that the LTCH hospitalization, the surgical treatment
arising from this hospitalization, and the post-operative stay at the
LTCH are to be viewed as one episode of care and therefore, the LTC-DRG
payment would be adequate compensation for the entire episode. (In
fact, when LTCHs were paid under the reasonable cost-based TEFRA
payment policy--subject to hospital-specific ceilings or `target
amounts'--prior to the FY 2003 implementation of the LTCH PPS, the
``under arrangements'' policy enabled LTCHs to include the costs
incurred by the LTCH for these treatments on Medicare claims, thereby
resulting in higher TEFRA target amounts.) However, when we restated
the ``under arrangements'' policy for the 3-day or less interruption of
stay, and proposed its codification in the RY 2005 proposed rule for
the LTCH PPS, in response to comments received on the January 30, 2004
proposed rule, we did agree to establish a 1-year exception to the
``under arrangements'' feature of the 3-day or less interruption of
stay policy for cases that grouped to a surgical DRG during an
intervening acute care hospitalization. We subsequently extended this
exception for an additional year to gather sufficient data with which
to determine the value of retaining this exception to the general
policy.
Therefore, based on the above data analysis and under the broad
discretionary authority granted by section 123 of the BBRA as amended
by section 307(b) of the BIPA for the Secretary for the development and
implementation of the LTCH PPS (including the ability to make
appropriate adjustments); sections 1861(w)(1), 1862(a)(14), and 1871 of
the Act; and Sec. 411.15 and Sec. 412.509 of the regulations, we are
not renewing the surgical-DRG exception to the 3-day or less
interruption of stay policy for LTCH PPS RY 2007. Under Sec. 412.531,
with the sunsetting of this exception for LTCH PPS RY 2007, treatment
at an acute care hospital that was grouped to a surgical DRG would be
considered part of the LTCH stay and paid for by the LTCH ``under
arrangements'' (see Sec. 412.509(c)). Our analytic sample of LTCH
cases that included a 3-day or less interruption of stay that was
governed by the surgical DRG exception, indicates that at least one-
half of the LTCH claims themselves included surgical care, despite the
patient's discharge to the acute care hospital for treatment that was
grouped to a surgical DRG and for which a separate claim was submitted
to Medicare by the acute care hospital. Since typically, LTCHs do not
perform significant surgical procedures, upon analyzing the data, CMS
coders believe that some of the LTCH claims may inappropriately be
including the surgical procedure performed during the prior acute care
stay, complications from which led to the LTCH admission. If LTCHs are
presently coding for the surgical procedures that are being delivered
in the acute care hospital during a 3-day or less interruption of stay,
in many of these cases they should be paying for this treatment ``under
arrangements.'' Furthermore, in the cases where the same DRG is
reported by both the LTCH and the acute care hospital treating the
patient during the 3-day or less interruption, Medicare may be paying
twice for the same treatment. In any event, the above scenarios are
indicative of poor documentation in the medical record, poor coding, or
gaming of the Medicare system.
Because we believe LTCH's discharges are grouped to DRGs that are
often reflective of the surgery, we do not believe that the surgical
exception to the 3-day or less interruption of stay policy is ``* * *
actively accomplishing our goal of reducing unnecessary Medicare
payments and * * * deter[ing] unnecessary inappropriate Medicare
payments while not compromising beneficiary access to medically
necessary services'' (70 FR 24206). We are therefore discontinuing the
policy for the surgical exception.
However, there were cases among those that we reviewed that appear
to have been accurately coded and that actually represented a LTCH
patient whose LTCH treatment was interrupted by a surgery which
entailed a 3-day or less inpatient stay at an acute care hospital for a
problem unrelated to the on-going treatment at the LTCH. Once the
sunsetting of the surgical DRG exception goes into effect, a LTCH will
be responsible for paying the costs of surgical services performed at
an acute care hospital ``under arrangements.'' However, at that point,
the LTCH will be able to include that surgical procedure on its claim
that will be submitted to Medicare even though the procedure was not
provided to the patient directly by the LTCH. The presence of a
significant surgical procedure on the claim may impact the LTC-DRG to
which a case is assigned by the GROUPER software used by the FI in
determining the amount that Medicare will pay for that case. However,
there may be situations where the inclusion of the surgical procedure
does not result in grouping the case to a higher-weighted LTC-DRG (and
thus increase the Medicare payment). In these cases, we would emphasize
that, since, as noted previously, the ``under arrangements'' policy was
a feature of the previous TEFRA payment policy prior to the FY 2003
implementation of the LTCH PPS, and costs of off-site surgeries were
typically included in

[[Page 27874]]

LTCH claims, to the extent providers included those costs on their
claims, these additional costs were included in the establishment of
the LTCH PPS base rate.
We would further note that we do not believe that the numbers of
cases nationwide that would fall within the surgical DRG exception
represent a significant financial burden for LTCHs to absorb over a
cost-reporting period, given the nature of the LTCH PPS.
We also believe that the LTCH PPS HCO policy at Sec. 412.525(a)
will provide somewhat of a financial cushion for the LTCH in those very
few cases where a LTCH patient whose hospitalization at the LTCH was
interrupted for 3 days or less for a very costly surgical treatment at
an acute care hospital. This is consistent with the HCO policy
applicable for a costly non-surgical inpatient or outpatient treatment
during a 3-day or less interrupted stay at an acute care hospital, an
IRF, or for care at a SNF.
Our further examination of the subset of the data indicates that
the exception may be fostering confusion, perpetuating poor coding, and
even encouraging gaming by creating a distinction within the well-
established Medicare ``under arrangements'' policy between surgical and
non-surgical procedures and treatments delivered during an episode of
hospital-level care. Moreover, we have discovered some LTCHs are
including the surgical procedures performed at the acute care hospital
during the interruption in their claims and therefore the LTCH
hospitalizations are being grouped to surgical DRGs while claims for
what appear to be the same surgeries are also being submitted by acute
care hospitals. Use of the same surgical DRG in both the LTCH's claim
for the case and the acute care hospital's claims for the surgery in
some of these cases indicates that Medicare may be paying twice for the
exact same operation, a situation directly contravened by sections
1862(a)(14) and 1861(w)(1) of the Act, Sec. 411.15 and Sec. 412.509.
Accordingly, we believe that based on our analysis of the data from the
MedPAR files from all LTCH discharges occurring from July 1, 2004
through June 30, 2005, the exception does not appear to have an overall
beneficial effect on the program nor would its absence have a strong
negative impact on LTCHs.
In the RY 2006 LTCH PPS final rule (70 FR 24206), we also expressed
concerns about whether our data would reveal an increase in the numbers
of interruptions of 4 days, indicating an effort by certain LTCHs to
side-step the ``under arrangements'' provisions of our 3-day or less
interruption of stay policy. If the interruption in a LTCH patient's
stay exceeds 3 days, under existing policy at Sec.
412.531(b)(1)(ii)(B) and Sec. 412.531(c), payment would be governed by
the greater than 3-day interruption of stay policy at Sec. 412.531(b)
and Medicare would generate a separate payment to an intervening
provider where the patient received treatment or care, thus discharging
the LTCH from responsibility to pay for the acute care services ``under
arrangements.'' Furthermore, an interruption in a LTCH stay in excess
of 3 days, where the patient returns home but still receives outpatient
treatment prior to returning to the LTCH, would result not only in
separate Medicare payments for the outpatient care but would also
result in an additional discharge payment to the LTCH since the greater
than 3-day interruption of stay policy only applies to intervening
acute care hospital, IRF, or SNF stays. We will be evaluating data from
RY 2004 and RY 2005 on Medicare payments for services or care delivered
during LTCH interruptions of stay of 4 days that would otherwise have
been governed by the ``under arrangements'' feature of the 3-day or
less interruption of stay policy at Sec. 412.531(b)(1)(ii)(A)(2) to
determine whether an additional day is being arbitrarily added to the
interruption prior to readmittance to the LTCH for purposes of
thwarting the goal of the policy. We believe it may be appropriate in
the future to propose a further revision to the 3-day or less
interruption of stay provision and to establish another threshold.
Comment: Commenters questioned whether the cost of these surgical
cases were correctly reported under the TEFRA payment system, thus,
making it questionable whether such costs were included in the LTCH PPS
base period costs. Two commenters stated that the surgical procedures
are not included in the current relative weights as coding for this
care was never historically included by most LTCHs; thus, the proposal
to discontinue the exception would inappropriately require LTCHs to
care for vulnerable populations without adequate reimbursement. They
recommend that we postpone our elimination of the surgical exception
until such time as the costs can be accounted for in the DRG weights.
Commenters also noted that one year of data is not adequate to
eliminate this exception.
Response: We note that under the TEFRA payment system, if a LTCH
patient required tests and procedures that were unavailable at a LTCH,
under section 1862(a)(14) of the Act, implemented in regulations at
Sec. 411.15(m), the statute requires that they be provided ``under
arrangements.'' Thus, if a LTCH patient required tests and procedures
that were unavailable at the LTCH, we assume that the LTCH had provided
those services ``under arrangements'' (and did not discharge the
patient to another site of care and directly admit the patient
following the off-site treatment) because that was the process required
by the statute and regulations. Consequently, we believe that hospitals
included the costs of medical services procured elsewhere ``under
arrangements'' in a patient's Medicare claim. Under the TEFRA system,
these additional costs would then have been included in the hospital
target amount and would be paid for by Medicare. We expect that as
responsible corporate entities, LTCHs take necessary steps to comply
with Medicare regulations which they are required to follow through
their provider agreements under Part 489. We presume that LTCHs, to the
extent that they were following our regulations, would have included
the costs of services furnished ``under arrangements'' in their cost
reports.
Data from FY 2000 and CY 2002 MedPAR files were analyzed to track
patients discharged from a LTCH, admitted to other inpatient sites,
which were followed by readmission to the LTCH. (We believe that the
data we accumulated for these two years was more than adequate to base
a decision for the surgical exception.) If tests and procedures were
being provided for ``under arrangements,'' in compliance with our
regulations, significant patient movement, that is, discharge from the
LTCH followed by a subsequent readmission to the LTCH, would have been
uncommon. Our data indicated that in FY 2000, only 1.1 percent of all
Medicare LTCH patients were readmitted to a LTCH within 3 days of a
discharge (912 cases out of 80,893 total cases) of which less than 700
were treated in acute-care hospitals during the 3-day interruption. We
believe that this data indicates that prior to the implementation of
the LTCH PPS, the vast majority of LTCHs complied with the ``under
arrangements'' regulations. Therefore, since the patient was not
discharged to procure the service, but rather remained a LTCH patient,
even though the LTCH moved the patient to another site for needed tests
or care, those tests or care were provided ``under arrangements''.
Accordingly, the costs of these services should be included in the
patients' Medicare claims during those years and, thus, should have
been

[[Page 27875]]

factored in when we were calculating our base rates for the LTCH PPS.
Moreover, the charges included charges associated with these services,
thus, allowing us to use this charge data when determining the LTC-DRG
weights for the LTCH PPS.
Comment: One commenter stated that any ``suggestion'' by CMS coders
that the LTCH claims may be incorrect because some LTCH claims included
surgical care and are grouped to surgical DRGs is a concern that can be
dealt with on a case-by-case basis, without eliminating the surgical
exception. Another commenter suggested that this concern regarding
incorrect coding may be resolved by requiring greater participation in
the coding clinics that are available, as well as working with both the
QIO and the FIs to develop better coding skills. Another commenter
stated that if we believe some of the problems are due to LTCH claims,
including surgical procedures performed during the prior acute stay,
then we should correct the problem through focused audits and not by
eliminating this surgical exception.
Response: As we have stated elsewhere in this document, our
decision to discontinue the surgical DRG exception for the 3-day or
less interruption of stay policy is based on the results of our
analyses of claims data. Although we had agreed to provide for a
temporary exception to the 3-day or less interrupted stay provision, we
have now determined that it is no longer appropriate. On further
examination of the data, we believe that this surgical exception caused
some confusion, thus, perpetuating other problems (for example,
coding). We disagree with the commenter's suggestion that we should
address this issue by conducting coding clinics to improve coding
skills. Based on the data described below, we believe the exception is
not necessary even if LTCHs were to be ``educated'' as to proper coding
techniques. As we stated previously in the RY 2006 LTCH PPS final rule,
and as we reiterated in the RY 2007 LTCH PPS proposed rule (71 FR
4692), ``* * * we will be analyzing claims data over the next year to
determine whether the surgical DRG exception to the `under arrangement'
feature of the 3-day or less interrupted stay policy is actively
accomplishing our goal of reducing unnecessary Medicare payments and to
deter inappropriate Medicare payments while not compromising
beneficiary access to medically necessary services.'' Based on the
analysis of this claims data, as well as our belief that this exception
is not actively accomplishing our goals as stated above, we believe it
is appropriate to discontinue the surgical exception to the 3-day or
less interrupted stay policy. Furthermore, we do not agree with the
commenters that addressing the problem of including the surgical
procedure for those LTCHs that did not provide the service ``under
arrangements'' is an appropriate use of the limited QIO budget.
Comment: Several commenters opposed the elimination of the surgical
DRG exception because they strongly believe that the cost of these
surgical DRG cases should not be left to the LTCHs. Moreover, one
commenter stated that eliminating the surgical exception along with
other reductions throughout this final rule will certainly have a
strong negative impact on LTCHs and their ability to be able to
continue to provide services. Another commenter stated that it was
unfair for CMS to apply some significant financial changes and expect
LTCHs to continue to shoulder higher unreimbursed costs. One commenter
suggested that a one-time adjustment be made to include the additional
cost to pay for these services ``under arrangement'' in the standard
Federal rate. Commenters also noted that a statement was made that the
number of cases involved with the surgical exception represents only a
small number of LTCH hospitalizations and therefore these cases ``* * *
would not represent a significant financial burden for LTCHs to absorb
over a cost-reporting period, given the nature of the LTCH PPS.'' They
believe that this statement is not a valid reason for CMS to eliminate
the surgical exception.
Response: With regard to the commenters' concerns that our
elimination of the surgical exception would place undue financial
burden on LTCHs, we note that, previously, under the TEFRA payment
system, LTCHs were required to provide all necessary patient care,
either directly or ``under arrangements.'' It has been standard
Medicare PPS policy for over two decades that the LTCH hospitalization,
the surgical treatment arising from this hospitalization, and the post-
operative stay at the LTCH are to be viewed as one episode of care.
Therefore, the LTC-DRG payment would be adequate compensation for the
entire episode of patient care.
As we have discussed previously in this final regulation, we stated
that we would ``be analyzing claims data over the next year to
determine whether the surgical DRG exception to the `under arrangement'
feature was accomplishing the goal of reducing unnecessary Medicare
payments and to deter inappropriate Medicare payments while not
compromising beneficiary access to medically necessary services'' (71
FR 4692). CMS analyzed claims from MedPAR files for LTCH discharges
from July 1, 2004 through June 30, 2005 and performed the analysis
necessary for evaluating the impact of the surgical DRG exception to
the 3-day or less interruption of stay policy. As a result of the above
data analyses, we are discontinuing the surgical exception to the 3-day
or less interruption of stay policy because we do not believe that the
surgical exception to the 3-day or less interruption of stay policy is
``* * * actively accomplishing our goal of reducing unnecessary
Medicare payments and * * * deter[ing] unnecessary inappropriate
Medicare payments while not compromising beneficiary access to
medically necessary days'' (70 FR 24206).

B. Special Payment Provisions for LTCH Hospitals Within Hospitals
(HwHs) and LTCH Satellites

In the IPPS final rule for FY 2005, when we established the special
payment provisions at Sec. 412.534 for LTCHs that were HwHs or were
satellites of LTCHs, we were seeking, in part, to address the on-going
proliferation of LTCHs that were HwHs or satellites. (OSCAR files
report that there were 105 LTCHs in 1993, of which 10 were HwHs. In
October 2005, there were 373 LTCHs, many of which are HwHs.) We were
particularly concerned with patient shifting between the host hospitals
and the LTCH HwH or satellite for financial rather than for medical
reasons (69 FR 49191) and with the resulting inappropriate increased
cost to the Medicare system.
In that PPS final rule, we quoted the FY 1995 IPPS final rule where
we first discussed the concern that LTCH HwHs were, in effect,
operating as step-down units of acute care hospitals. We explained that
this was inconsistent with the statutory framework and that such a
configuration could lead to two Medicare bills being submitted and paid
(one from the acute care hospital and the other from the LTCH) for what
was essentially one episode of care (69 FR 49191, 59 FR 45389). When we
established the separateness and control criteria for LTCH HwHs at
Sec. 412.22(e) in the FY 1995 IPPS final rule, our main objective was
to protect the integrity of the IPPS by ensuring that those costly,
long-stay patients who could reasonably continue treatment in that
setting would not be unnecessarily discharged to an onsite LTCH, a
behavior that would skew and undermine the Medicare IPPS DRG system. We
explained that the

[[Page 27876]]

Federal standardized payment amount for the IPPS was based on the
average cost of an acute care patient across all acute care hospitals.
This assumes that, on average, both high-cost and low-cost patients are
treated at a hospital. Although Medicare might pay a hospital less than
was expended for a particular case, over a period of time, the hospital
would also receive more than was expended for other cases. However, an
acute care hospital that consistently discharges higher cost patients
to a post-acute care setting for the purpose of lowering its costs
undercuts the foundation of the IPPS DRG system, which is based on
averages. In this circumstance, the hospital inappropriately would have
incurred lower costs under the IPPS because the course of acute
treatment was not completed and the hospital did not incur those
additional costs for the remainder of the patient's stay at the IPPS
acute care hospital. Once that patient is discharged from the IPPS
acute care hospital to the LTCH, the patient, still under active
treatment for an acute illness, will be admitted to a LTCH, thereby
generating a second admission and Medicare payment that would not have
taken place but for the fact of co-location (59 FR 45389).
As explained previously, there was and continues to be concern that
the LTCH HwH/host configuration could result in patient admission,
treatment, and discharge patterns that are guided more by attempts to
maximize Medicare payments than by patient welfare. To establish a
clear division between a host hospital and an on-site LTCH where the
linking of an IPPS hospital and a LTCH could lead to two Medicare
payments for what was essentially one episode of patient care, we
issued ``separateness and control'' regulations in that FY 1995 IPPS
Final Rule at (former) Sec. 412.23(e), for LTCHs that were seeking to
co-locate with acute care hospitals as HwHs (59 FR 45390). In the
ensuing decade, we revisited the issue of HwHs several times (for
example, 60 FR 45836, 62 FR 46012, 67 FR 56010, and 68 FR 45462),
during which we clarified and amplified the separateness and control
requirements. In the FY 1998 IPPS final rule, we extended the
application of these rules beyond LTCHs to include other classes of
facilities that might seek exclusion from the IPPS as HwHs, such as
IRFs (although the vast majority of HwHs have continued to be LTCHs)
(62 FR 46014). Additionally, although our original regulations for HwHs
focused solely on the relationship between a LTCH HwH and an acute care
host hospital, and this is still, by far, the most common
configuration, nothing in the regulations precludes other types of
hospitals, for example, IRFs, from establishing HwHs (69 FR 49198).
In addition, in the FY 1998 IPPS final rule, we established a
``grandfathering'' provision for HwHs in existence prior to September
30, 1995 at Sec. 412.22(f), and in the FY 2004 IPPS final rule we
clarified and codified the requirements for ``grandfathered'' HwHs (68
FR 45463). We believed at that time that these rules were sufficient
solutions to our concerns about LTCH HwHs functioning as long-stay
units of acute care host hospitals.
Therefore, prior to FY 2005, a HwH was required to meet the
separateness and control criteria set forth at Sec. 412.22(e). To be
excluded from the IPPS, the HwH had to have a separate governing body,
a separate chief medical officer, a separate medical staff, and a
separate chief executive officer. Regarding the performance of basic
hospital functions (former Sec. 412.22(e)(5)), the hospital had to
meet at least one of the following criteria: (1) The hospital performs
the basic functions through the use of employees or under contracts or
other agreements with entities other than the hospital occupying space
in the same building or on the same campus, or a third entity that
controls both hospitals; (2) for the same period of at least 6 months
immediately preceding the first cost reporting period for which
exclusion is sought, the cost of the services that the hospital
obtained under contracts or other agreements with the hospital
occupying space in the same building or on the same campus, or with a
third entity that controls both hospitals, is no more than 15 percent
of the hospital's total inpatient operating costs, as defined in Sec.
412.2(c) (inpatient operating costs include operating costs for routine
services, such as costs of room, board, and routine nursing services;
operating costs for ancillary services, such as laboratory or
radiology; special care unit operating costs; malpractice insurance
costs related to serving inpatients; and preadmission services); or (3)
for the same period of at least 6 months immediately preceding the
first cost reporting period for which exclusion is sought, the hospital
had an inpatient population of whom at least 75 percent were referred
to the hospital from a source other than another hospital occupying
space in the same building or on the same campus or with a third entity
that controls both hospitals.
It was our experience that the vast majority of HwHs elected to
meet the second of the three criteria at Sec. A412.22(e)(5), that is,
the cost of the services that the hospital obtained from the co-located
hospital or with a third entity that controls both hospitals could be
no more than 15 percent of its total inpatient operating costs.
As detailed in the FY 2005 proposed rule and final rule for the
IPPS (69 FR 28323 through 28327, 69 FR 49191 through 49214), with the
noted explosive growth in the number of LTCHs, (and with LTCH HwHs, in
particular) and concomitant costs to the Medicare program, we
reevaluated the effectiveness of existing policies regarding HwHs
insofar as whether they sufficiently protected the Medicare program
from the problems that we envisioned in the FY 1995 IPPS final rule and
subsequent rules. We also questioned the effectiveness of the
``separateness and control'' requirements alone because entities have
used complex arrangements among corporate affiliates, and obtained
services from those affiliates, thereby impairing or diluting the
separateness of the corporate entity. While technically remaining
within the parameters of the rule, these arrangements were
intermingling corporate interests so that the corporate distinctness
had been lost.
In accordance with notice and comment rule-making and following
serious consideration of the public comments that we received on our
proposed policy revisions for LTCH HwHs, regulatory changes were
finalized for HwH separateness and control policies at Sec. 412.22(e)
and a new payment adjustment at Sec. 412.534 was established for LTCH
HwHs and satellites of LTCHs in our FY 2005 IPPS final rule (69 FR
49191 through 49214).
Specifically, for cost reporting periods beginning on or after
October 1, 2004, for LTCHs we eliminated the 15 percent test under then
existing Sec. 412.22(e)(5)(ii), the performance of basic hospital
functions test under former Sec. 412.22(e)(5)(i) and the 75 percent of
admissions from other than the host criteria at former Sec.
412.22(e)(5)(iii) for LTCH HwHs. If a LTCH demonstrated compliance with
the medical and administrative separateness and control policies at
Sec. 412.22(e)(1)(i) through (e)(1)(iv) under our finalized policy, it
satisfied the LTCH HwH requirements. We additionally established a
payment adjustment for LTCH HwHs (and also for satellites of LTCHs) at
Sec. 412.534, which we believed addressed our on-going concerns
regarding the relationship between LTCH discharges who were admitted
from the host hospital. We included LTCH satellites in this payment
adjustment because we

[[Page 27877]]

believed that the co-location of a host hospital and a LTCH satellite
may result in the same incentives for inappropriate patient movement as
exist for hosts and LTCH HwHs.
The payment adjustment at Sec. 412.534, Special payment provisions
for long-term care HwHs and satellites of LTCHs, mandates that if a
LTCH HwH's or LTCH satellite's discharges that were admitted from its
host hospital exceed 25 percent (or the applicable percentage) of its
total Medicare discharges for the LTCH HwH's or LTCH satellite's cost
reporting period, an adjusted payment would be made. The adjustment
would be the lesser of the otherwise payable amount under the LTCH PPS
or the LTCH PPS amount that was equivalent to what Medicare would
otherwise pay under the IPPS. In determining whether a hospital
exceeded the 25 percent criterion, patients transferred from the host
hospital that have already qualified for HCO payments at the host would
not count as part of the host's 25 percent (or the applicable
percentage) and therefore, the payment would not be subject to the
adjustment. Those patients would be eligible for otherwise unadjusted
payment under the LTCH PPS. Discharged Medicare patients that were
admitted from the host before the LTCH HwH or LTCH satellite crosses
the 25 percent threshold would be paid an otherwise unadjusted payment
under the LTCH PPS.
We also finalized additional adjustments to the 25 percent policy
for specific circumstances. For LTCH HwHs or LTCH satellites located in
a rural area, instead of the 25 percent criterion, the payment
adjustment would be imposed if the majority (that is, more than 50
percent) of the Medicare patients discharged from the LTCH HwH or LTCH
satellite were admitted from the host. In addition, in determining the
percentage of Medicare patients discharged from the LTCH HwH or LTCH
satellite that were admitted from the rural host, any patients that had
been Medicare outliers at the host and then were discharged to the LTCH
HwH or LTCH satellite would be considered as if they were admitted to
the LTCH from a non-host hospital. Furthermore, for urban single or MSA
dominant hospitals, we would allow the LTCH HwH or LTCH satellite to
discharge Medicare patients that were admitted from the host up to the
host's percentage of total Medicare discharges for like hospitals in
the MSA. We would apply a floor of 25 percent and a ceiling of 50
percent to this variation. In addition, in determining the percentage
of discharged Medicare patients that were admitted to the LTCH HwH or
LTCH satellite from the urban single or MSA dominant host hospital, any
patients that had been Medicare outliers at the host and then
transferred to the LTCH HwH or LTCH satellite would be considered as if
they were admitted to the LTCH from a non-host hospital.
We also provided a 4-year transition for existing LTCH HwHs or LTCH
satellites for the purpose of providing a reasonable period during
which the host and the LTCH HwH or LTCH satellite would be able to
adapt to the requirements of the new policy. Also included in this
transition policy were LTCHs under formation that satisfied the
following two-prong requirement: (1) the hospital was paid under the
provisions of subpart O of part 412 on October 1, 2005, and (2) the
hospital's qualifying period under Sec. 412.23(e) began on or before
October 1, 2004. For cost reporting periods beginning on or after
October 1, 2004 through September 30, 2005, these hospitals were to be
grandfathered, with the first year as a ``hold harmless'.
However, we required that even for grandfathered facilities, in the
first cost reporting period, the hold harmless year, the percentage of
Medicare discharges admitted from the host hospital to the LTCH HwH or
LTCH satellite could not exceed the percentage of discharges admitted
from the host hospital to the LTCH in its FY 2004 cost reporting
period. Therefore, while we grandfathered existing LTCH HwHs and
allowed for a 4-year transition, beginning on or after October 1, 2004
and before October 1, 2005 (FY 2005), those hospitals could not
increase the percentage of discharges admitted from the host in excess
of the percentage that they had admitted in FY 2004.
After the first grandfathered cost reporting period, the
grandfathered LTCH HwHs and LTCH satellites were required to meet an
increasing percentage threshold over the next 3 years beginning in FY
2006. For the second year (cost reporting periods beginning on or after
October 1, 2005 but before October 1, 2006), the applicable percentage
of discharges admitted from the host with no payment adjustment would
be the lesser of the percentage of their discharges admitted from their
host for their FY 2004 cost reporting period or 75 percent. For the
third year (cost reporting periods beginning on or after October 1,
2006 but before October 1, 2007), the applicable percentage of
discharges admitted from the host with no payment adjustment would be
the lesser of the percentage of their discharges admitted from their
host for their FY 2004 cost reporting period or 50 percent, and finally
25 percent (or other applicable percentage) beginning with the third
year (cost reporting periods beginning on or after October 1, 2007).
These finalized payment policies and the concerns that they address
echo concerns first expressed in the FY 1995 final rule for the IPPS,
when we began to regulate new entities that we named ``hospitals within
hospitals''. As noted elsewhere in this preamble, the reason that we
proposed the changes in the criteria for LTCH HwH qualification at
Sec. 412.22(e) in the FY 2005 IPPS proposed rule (69 FR 28323 through
28327) was the nexus between these concerns and the explosive growth in
the numbers of LTCH HwHs. Furthermore, as detailed in the FY 2005 IPPS
final rule (69 FR 49201), these regulations were grounded in a thorough
review of the available data as well as exhaustive policy evaluations.
As we stated in the RY 2007 LTCH PPS proposed rule (71 FR 4648), as
a result of our monitoring efforts to date (see section XI. of the
preamble to this final rule), we have become increasingly aware that
the intent of our existing policy is being thwarted by creative
patient-shifting in some communities where there is more than one LTCH
HwH or LTCH satellite. We have come to understand, based upon specific
inquiries from LTCHs and their attorneys or agents, and also from
questions posed by our fiscal intermediaries (FIs), that some host
hospitals within the same community are arranging to cross-refer to
another's co-located LTCH (HwH or satellite). This behavior circumvents
the intent of the payment adjustment which was to hinder the de facto
establishment of a LTCH unit of a host hospital, which is precluded by
law, and to discourage inappropriate patient-shifting between a host
and a LTCH HwH or satellite. This practice also undermines the basic
premise of the IPPS DRG classification system and generates
inappropriate Medicare payments. Another attempt to circumvent the
present regulation at Sec. 412.534 is a situation wherein a LTCH (that
is co-located with a host as a HwH or satellite) admits a patient from
the host, provides treatment, then transports the patient to another
location of that LTCH (a free-standing hospital or another HwH or
satellite not co-located with the host hospital) for special treatment,
after which the patient is discharged from that other location. Since
the payment adjustment is being implemented on a location-specific
basis, we believe that this ``transporting'' of the patient to another
site is an attempt to side-step the

[[Page 27878]]

location-specific feature of the existing payment adjustment. We
expressed considerable concern about attempts to game Medicare by
circumventing the intent of the 25 percent (or applicable percentage)
patient threshold payment adjustment at Sec. 412.534.
In addition, as a result of implementing the payment adjustment at
Sec. 412.534 for patients exceeding the 25 percent (or applicable
percentage) threshold for LTCH HwHs and satellites of LTCHs, the most
recent growth in the LTCH universe is occurring with the development of
free-standing LTCHs. Many of these facilities receive patients from one
referring hospital and as is the case with host/HwH or satellite
configurations, we are concerned that these non-co-located LTCHs may,
in fact, be functioning like a long-stay unit of those referring
hospitals.
As we first stated in the FY 1995 IPPS final rule, ``we agree that
the extent to which a facility accepts patients from outside sources
can be an important indicator of its function as a separate facility,
not merely a unit of another hospital. In general, a facility's
functional separateness should be reflected in its ability to attract
patients from sources other than the hospital that it serves. For
example, if a facility receives all (or nearly all) of its admissions
independently (that is, from outside sources), it can reasonably be
assumed to be functioning separately from the host hospital (59 FR
45391).'' In establishing the concept of ``functional separateness'' in
the above quote from the FY 1995 IPPS final rule, we were identifying a
broader phenomenon than just the relationship between a host acute care
hospital and a LTCH HwH or satellite of a LTCH. As noted below, this
concern has been communicated to us from a variety of sources.
MedPAC's comments on the proposed payment adjustment for LTCH HwHs
in the FY 2005 IPPS proposed rule focused directly on this issue and
expressed concern that the 25 percent patient threshold policy would
have a significant impact and could possibly lead to an inequitable
situation for co-located LTCHs as compared to freestanding LTCHs. Among
its concerns were the following: that freestanding LTCHs also have
strong relationships with acute care hospitals, and that where on
average LTCH HwHs receive 61 percent of their patients from their
hosts, freestanding LTCHs receive 42 percent from their primary
referring hospital; that a 25 percent rule that only applies to LTCH
HwHs and not to freestanding LTCHs may therefore be inequitable; and
furthermore, that this approach may be circumvented by an increase in
the number of freestanding LTCHs instead of LTCH HwHs (69 FR 49211).
In discussion with a LTCH trade association, we were informed of a
study that it commissioned from the Lewin Group that included a
percentage breakdown of patients referred to free-standing (for
example, non-co-located) LTCHs (and other post-acute providers) from
``single-source acute hospitals.'' According to the association, the
data indicated ``'that it is common practice for LTCHs `` to admit
patients from single-source acute care hospitals'' and that 71.2
percent of free-standing LTCHs admit more than 25 percent of their
patients from a single source acute-care hospital.
We are also anecdotally aware of the existence of frequent
``arrangements'' in many communities between Medicare acute and post-
acute hospital-level providers that may not have any ties of ownership
or governance relating to patient shifting that are based on mutual
financial advantage rather than on significant medical benefits for a
patient.
In our response to the MedPAC comment, we stated that ``[w]hile we
also understand the reservations expressed in the comments, we want to
emphasize that `` we are establishing these revised payment policies in
this final notice for LTCH HwHs or satellites and not freestanding
LTCHs because of the considerable growth in the number of LTCH HwHs and
because, ever since we first became aware of the existence of LTCH HwHs
in 1994, we have been mindful of the strong resemblance that they bore
to LTCH units of acute care hospitals, a configuration precluded by
statute (69 FR 49211).''
Notwithstanding this response and the finalized payment adjustment
at Sec. 412.534, which focused solely on LTCH HwHs and satellites of
LTCHs, we took considerable note of these comments and the specific
information that they included. Since the October 1, 2004
implementation of the payment adjustment for LTCH HwHs and satellites
of LTCHs at Sec. 412.534, through our LTCH PPS monitoring initiative
(see Section XI.), we have become aware that the growth in the LTCH
universe is now occurring through the development of free-standing
LTCHs. As of October 2005, there were 376 LTCHs in our OSCAR database,
of which 201 are reported as freestanding (for example, not co-located
with another Medicare hospital-level provider) and 175 of which are
HwHs. But since October 1, 2004, of the 25 new LTCHs established, 22
are free-standing. We have been informed directly that at least one
particular LTCH chain that formerly specialized in the establishment of
HwHs and satellites is now concentrating on the development of free-
standing LTCHs. Reviews of public documents posted at the corporate
website and analysis of the expected consequences of the policy at
other investor-oriented sites describe a focus on building free-
standing LTCHs, which we believe may imply a response to the payment
adjustment for co-located LTCHs established under Sec. 412.534.
We believe that this information indicates that the concerns that
we expressed about the explosive growth in the number of LTCHs has
shifted because of the implementation of the payment adjustment at
Sec. 412.534 from the development of co-located LTCHs as HwHs or
satellites of LTCHs to the establishment of free-standing LTCHs.
We further conducted our own data analysis of sole-source (for
example, one hospital referring to one LTCH) relationships between
acute care hospitals and non-co-located LTCHs. The FY 2004 and FY 2005
MedPAR files indicate 63.7 percent of the 201 free-standing LTCHs have
at least 25 percent of their Medicare discharges admitted from a sole
acute care hospital; for 23.9 percent of the freestanding LTCHs, the
percentage is 50 percent or more; and for 6.5 percent, 75 percent or
more of their Medicare discharges are admitted from a sole acute care
hospital.
Therefore, we believe that the danger of LTCHs functioning as
``units'' appears to be occurring not only in LTCH HwHs and LTCH
satellites but also with free-standing LTCHs, and that in many cases,
these non-co-located LTCHs and their sole referral source may be
functioning in ways that appear to have erased the line of ``functional
separateness'' between these LTCHs and their referring acute care
hospitals. We are concerned about these situations and in this context,
we continue to believe that ``* * * the extent to which a facility
accepts patients from outside sources can be an important indicator of
its function as a separate facility, not merely a unit of another
hospital (59 FR 45391).''
We believe that our analysis of the available data and our
awareness of growth patterns and behavioral changes in the LTCH
industry corroborate the concerns expressed in correspondence and
comments, but particularly in MedPAC's comments on our proposed payment
adjustment for co-located LTCHs in the FY 2004 IPPS final rule (69 FR
49211). In addition, the spiked increase in the number of free-standing
LTCHs and their admission patterns

[[Page 27879]]

appear to confirm MedPAC's concerns that the industry may be
circumventing the intent of the payment adjustment policy at Sec.
412.534 aimed at combating LTCHs functioning as ``units'' by creating
free-standing LTCHs instead of LTCHs co-located as HwHs or satellites.
As we note previously in this final rule, we are keenly aware of
the explosive growth in the number of free-standing LTCHs.
Specifically, we are continuing to analyze patient claims data for
acute care patients who are admitted to free-standing LTCHs for
discharge and LOS information to evaluate whether Medicare is paying
twice for what would essentially be one episode of care. We are
considering appropriate adjustments to address this issue.
Furthermore, we want to emphasize that we are closely monitoring
patient shifting activities between host hospitals and LTCH HwHs or
LTCH satellites, paying particular attention to evidence of
inappropriate cross-referrals. We believe that a pattern of this
behavior by hospitals would indicate an attempt to side-step the
requirements of Sec. 412.534 and could warrant an investigation by
HHS's Office of the Inspector General.
Under Sec. 412.534 for LTCH cost reporting periods beginning on or
after October 1, 2004, we published the existing payment adjustment
detailed above for LTCH HwHs and LTCH satellites that focused on the
percentage of Medicare patients being shifted from host hospitals to
co-located LTCHs. Under this provision, we specified that if greater
than 25 percent (or the appropriate percentage) of a LTCH HwH's or LTCH
satellite's discharges during any cost reporting year were admitted
from a host hospital, a payment adjustment would be applied to those
discharges that exceeded the applicable threshold percentage (unless
those patients had reached HCO status at the host hospital as specified
in Sec. 412.534(c)). (For LTCHs that qualified under Sec. 412.534(f),
we established a 4-year transition to the full payment adjustment.)
Specifically, this payment adjustment provides that Medicare will pay
the lesser of the amount otherwise payable under the LTCH PPS or a LTCH
PPS payment amount equivalent to what would be paid under the IPPS for
discharges in excess of the threshold amount.
It has come to our attention that the phrase ``an amount equivalent
to the amount that would otherwise be determined under the rules at
subpart A, Sec. 412.1(a)'', that is, the IPPS, in the existing Sec.
412.534(c)(2), (d)(1), and (e)(1) and our specific interpretation of
its implementation may not be entirely apparent. Therefore, we
clarified in the proposed rule that, as explained below in this
section, the use of the term ``equivalent'' does not necessarily mean
precisely equal. We are also codifying the formula that we currently
use to give effect to this phrase in existing Sec. 412.534, described
in this final rule, for purposes of administrative clarity.
To clarify the meaning of the term ``equivalent,'' we emphasize
that we chose that word rather than ``equal'' when referring to the
amount payable under this subpart (the amount that is equivalent to the
* * * amount that would be otherwise determined under the rules at
subpart A, Sec. 412.1(a)). The term ``equivalent'' was used in this
regulation because, although it was and continues to be our intent to
include a payment adjustment under the LTCH PPS that closely resembles
what an IPPS payment would have been for the same episode of care,
several features of the IPPS cannot be translated directly into the
LTCH PPS. Therefore, we believed that the term ``equivalent'' supports
the ultimate goals of the policy adjustment, while also allowing for a
reasonable and equitable implementation. For example, under the IPPS,
payments for IME are limited based on the hospital's IME FTE resident
cap. The hospital's IME FTE resident cap is determined based on the
number of FTE residents counted by the hospital for purposes of IME on
its base year (usually 1996) cost report. In the case of a LTCH, since
it would not have reported any FTE residents for IME on the base year
cost report, it would not be appropriate to apply the IPPS IME rules
literally in the context of this LTCH PPS payment adjustment.
We use the term ``equivalent'' in Sec. 412.534(c)(2), (d)(1), and
(e)(1) because we believe this language accurately reflects our intent
to utilize and build upon IPPS payment principles to develop a payment
adjustment under the LTCH PPS that approximates for LTCHs the payment
for a particular case that would have been made under the IPPS. For
example, in the case of a LTCH that is a teaching hospital, if a
particular LTCH discharge is governed by the 25 percent payment policy
adjustment set forth at Sec. 412.534, we would determine the IPPS-
equivalent IME payment adjustment under the LTCH PPS by imputing an IME
FTE resident cap based on the LTCH's direct GME cap (which would have
been determined for a LTCH that has residency programs as set forth at
Sec. 413.79(c)(2)) and using that imputed IME FTE resident cap to
calculate an IME payment adjustment for this LTCH. We believe this
methodology is reasonable since it is based on the best available data
on residency programs at LTCHs. Using an imputed IME FTE resident cap
could enable us to factor an adjustment for indirect costs of residency
programs into a Medicare payment under the payment adjustment at Sec.
412.534 for those cases in excess of the 25 percent (or applicable
percentage) threshold where the Medicare payment would be based on an
amount under the LTCH PPS equivalent to what would otherwise be paid
under the IPPS.
As explained previously, we are codifying the formula we use to
give effect to the phrase ``an amount under subpart O that is
equivalent to what otherwise would be paid under the IPPS.'' The
existing regulations at Sec. 412.534(c)(2), (d)(1), and (e)(1)
establish the applicable payment adjustment for LTCH HwHs and
satellites not subject to the transition established under Sec.
412.534(f) for cost reporting periods beginning on or after October 1,
2004 and for cost reporting periods beginning on or after October 1,
2007 for those LTCH HwHs and LTCH satellites that will be transitioning
to the full adjustment. Under those provisions, Medicare will pay for
patients discharged from a LTCH HwH or LTCH satellite that were
admitted from their host hospital in excess of the 25 percent (or
applicable percentage) threshold based upon the lesser of the amount
otherwise payable under the LTCH PPS or the amount payable under this
subpart that is equivalent to the amount that would otherwise be
payable under the IPPS. The paragraphs below detail the specific
payment features of the IPPS that we use and are codifying in
regulation for administrative efficiency to allow Medicare to generate
a fair and equitable ``equivalent'' IPPS payment under the LTCH PPS for
those LTCH discharges governed by the payment adjustment at Sec.
412.534.
In the discussion that follows, we use phrases such as ``IPPS DRG
relative weights,'' the ``IPPS HCO'' and the ``IPPS fixed loss amount''
in describing features of the IPPS that we use and build upon in the
LTCH PPS to make appropriate adjustments when calculating LTCH payments
for LTCH HwHs and LTCH satellites. However, we want to emphasize that
such a payment is not an IPPS payment, but rather, is a payment under
the LTCH PPS that is equivalent to a payment that would be derived from
the IPPS payment methodology.
As was proposed in the RY 2007 LTCH PPS proposed rule (71 FR 4648),
we are codifying in regulations that an amount payable under this
subpart that

[[Page 27880]]

is equivalent to what would otherwise be paid under the IPPS for the
costs of inpatient operating services would be based on the
standardized amount determined under Sec. 412.64(c), adjusted by the
applicable IPPS DRG weighting factors as specified in Sec. 412.64(g).
This amount would be further adjusted for area wage levels using the
applicable IPPS labor-related share based on the CBSA where the LTCH is
physically located set forth at Sec. 412.525(c), and the IPPS wage
index for non-reclassified hospitals published in the annual IPPS final
rule. (In the FY 2005 LTCH PPS final rule (70 FR 24200), we discuss the
inapplicability of geographic reclassification procedures for LTCHs.)
For LTCHs located in Alaska and Hawaii, this amount would also be
adjusted by the applicable COLA factors used under the IPPS.
Furthermore, for LTCH discharges governed by this payment adjustment,
an amount payable under subpart O that is equivalent to what would
otherwise be paid under the IPPS for the costs of inpatient operating
services would also include, where applicable, a DSH adjustment (Sec.
412.106) and where applicable, an IME adjustment (as discussed at Sec.
413.79(c)(2)).
Additionally, to arrive at a LTCH PPS payment amount equivalent to
what would otherwise be payable under the IPPS, a LTCH would also be
paid under the LTCH PPS for the costs of inpatient capital-related
costs, using the capital Federal rate determined under Sec.
412.308(c), adjusted by the applicable IPPS DRG weighting factors under
Sec. 412.312(b). This amount would be further adjusted by the
applicable geographic adjustment factors set forth at Sec. 412.316,
including local cost variation (based on the IPPS wage index for non-
reclassified hospitals published in the annual IPPS final rule), large
urban location, and COLA, if applicable.
For discharges governed by this payment adjustment under the LTCH
PPS, an amount payable under subpart O that is equivalent to an amount
that would otherwise be paid under the IPPS for the inpatient capital-
related costs would also include a DSH adjustment (Sec. 412.320), if
applicable, and an equivalent IME adjustment (Sec. 412.322), if
applicable.
A LTCH PPS payment amount equivalent to what would be paid under
the IPPS would be determined based on the sum of the amount equivalent
to what would be paid under the IPPS inpatient operating services and
the amount equivalent to what would be paid under the IPPS for
inpatient capital-related costs. This is necessary since, under the
IPPS, there are separate Medicare rates for operating (subpart D of
part 412) and capital (subpart M of part 412) costs to acute care
hospitals, while under the LTCH PPS, there is a single payment rate for
the operating and capital costs of the inpatient hospital's services
provided to LTCH Medicare patients.
We note that in section VI.A.1. of this final rule, we have added
an additional component to the SSO payment adjustment at Sec.
412.529(c)(2)(iv) that is based on an amount ``comparable'' to what
would otherwise be paid under the IPPS, rather than an amount
``equivalent'' under the existing payment adjustment at Sec. 412.534.
Although the new payment adjustment option under the SSO policy was
adapted from the existing LTCH HwH and LTCH satellite payment
adjustment at Sec. 412.534, it also preserves a distinction in the
existing SSO policy established at the start of the LTCH PPS for FY
2003: The use of the LTCH PPS fixed loss amount should a SSO case also
qualify for HCO payments after the SSO payment amount is determined. In
contrast, as noted previously, under the payment adjustment for LTCH
HwHs and LTCH satellites at Sec. 412.534, if the amount payable by
Medicare for a specific discharge was the amount under subpart O that
is equivalent to what would be otherwise payable under the IPPS and the
case also qualified as a HCO, the outlier payment for this case under
the LTCH PPS would be based on the IPPS HCO policy at Sec. 412.80(a)
because the resulting payment would then be more equivalent to what
would have been payable under the IPPS. Similarly, if under this
payment adjustment the lesser amount resulted in an ``otherwise payable
amount under the LTCH PPS,'' and the stay qualified as a HCO, Medicare
would generate a HCO payment governed by the LTCH PPS fixed loss amount
calculated under Sec. 412.525(a). If the estimated cost of the case
exceeds the adjusted LTC-DRG plus a fixed loss amount under Sec.
412.525(a), the LTCH would receive an additional payment based on the
LTCH PPS HCO policy.
Therefore, although there are significant similarities between the
two payment adjustments, as detailed in section VI.A.1 of this final
rule, there is a distinction between them regarding the computation of
any applicable HCO payments. Under the LTCH HwH and satellite payment
adjustment at Sec. 412.534, payment for discharges governed by the
policy will be ``the lesser of the amount otherwise payable under this
subpart [subpart O] or the amount that is otherwise payable under this
subpart that is equivalent to the amount that would be otherwise
payable under Sec. 412.1(a) [the IPPS].'' From an implementation
standpoint, Medicare would generate an applicable payment to the LTCH
for this discharge (which could include a HCO payment), but this
payment would be subject to reconciliation at the end of the LTCH's
cost reporting period when it would be determined whether or not the
particular discharge was subject to the payment adjustment at Sec.
412.534, that is, whether the discharge exceeded the 25 percent (or
applicable percentage) threshold. If this is the case, and the
calculation of the lesser of the amounts for a specific discharge
resulted in Medicare paying an amount under the LTCH PPS that was
equivalent to what would otherwise have been paid under the IPPS, and
that payment included a HCO payment, this LTCH PPS payment would be
governed by the regulations at Sec. 412.80(a)(3), based on the IPPS
HCO policy. If the lesser of the two amounts is the otherwise payable
amount under the LTCH PPS (which could be the case if the stay was a
SSO, under Sec. 412.529) the original LTCH PPS Medicare payment which
included the HCO payment under Sec. 412.525 will be finalized by the
FI.
In contrast, under the existing LTCH PPS SSO policy at Sec.
412.529(c), HCO payments could be made for a SSO stay, regardless of
whether the payment is ultimately based on: 120 percent of the LTC-DRG
specific per diem amount multiplied by the LOS of the discharge; 120
percent of the cost of the case; or the full LTC-DRG, if the total
costs of the case exceed the least of these three options, plus the
appropriate fixed-loss amount under Sec. 412.525. In the RY 2007 LTCH
PPS proposed rule (71 FR 4648), we had proposed a fourth component to
the SSO payment formula; however, in response to public comments, we
have made substantial revisions to this fourth component of the SSO
payment formula. Therefore, for the reasons described in section
VI.A.1, we are lowering the 120 percent of costs to 100 percent, and we
are also adding a revised fourth component to the current SSO payment
formula, (that is, a blend of an amount comparable to what would
otherwise be paid under the IPPS computed as a per diem, capped at the
full IPPS DRG payment amount and 120 percent of the LTC-DRG per diem
amount. For each day, as the LOS increases, the percentage of the IPPS
comparable amount will decrease and the percentage based on 120 percent
of the per diem LTC-DRG specific amount will increase. As the LOS
reaches the lower of the five-sixths SSO threshold

[[Page 27881]]

or 25 days, the payment will no longer be limited by the fourth option.
We are not, however, changing the existing SSO payment policy for HCOs,
and therefore, if the costs of the case exceeded the payment resulting
from this formula by the fixed loss amount under the LTCH PPS, Medicare
payment to the LTCH for this case would include HCO payment set forth
at Sec. 412.525.
Consequently, we clarify the term ``equivalent'' at Sec.
412.534(c)(2), (d)(1), and (e)(1) in our payment adjustment and codify
the formula we use to give effect to these existing regulations.
In Sec. 412.534, we established special payment provisions for
long-term care HwHs and satellites of LTCHs (69 FR 49206). At
subparagraph (d), we set forth a further payment adjustment for LTCHs
that were co-located as HwHs or as satellites of LTCHs with rural
hospitals and we cited the definition of rural at Sec. 412.62(f). This
cite was incorrect since beginning in FY 2005, we adopted OMB's revised
standards for defining MSAs (69 FR 49026) and therefore, the definition
of rural that we intended to cite in Sec. 412.534(d) was Sec.
412.64(b)(1)(ii)(C). We are therefore correcting Sec. 412.534(d) to
cite the revised definition of rural at Sec. 412.64(b)(1)(ii)(C).
We received the following comments on our discussion regarding the
25 percent rule for HwHs in LTCHs that we discussed in the RY 2007 LTCH
PPS proposed rule.
Comment: Several commenters submitted views on our discussion in
the RY 2007 LTCH PPS proposed rule regarding the 25 percent rule for
HwHs in LTCHs. Some commenters suggested that instead of expanding the
25 percent admission threshold, we should work with the LTCH industry
to develop the types of clinically-based certification criteria
recommended by MedPAC, which focus on patient characteristics and the
level of patient care services that should be available at every LTCH.
Other commenters stated that expansion of the 25 percent rule to free-
standing LTCHs is an arbitrary policy that puts patient care in
jeopardy while making no progress towards MedPAC's goal of ensuring
that patients are treated in the appropriate settings. Commenters
stated their belief that compliance with the 25 percent rule would be
almost impossible in communities where there may be only one or two
short-term acute care hospitals, so expansion of the rule could
effectively eliminate the ability of any LTCH (freestanding or HwH) to
exist in these communities. As a result, residents in need of long-term
care services would either need to travel outside the community or
receive inappropriate care in their community. Several commenters
stated that our allegation that LTCHs are operating as acute care
hospital ``units'' was misdirected and that neither freestanding nor
HwH LTCHs demonstrate the type of operational and financial integration
with a referring hospital that are the hallmark of ``unit'' status
(that is, each LTCH operates under its own provider agreement; files
cost reports independently from others; and independently meets the
hospital's conditions of participation).
Response: We did not propose to make a change to expand the 25
percent rule to freestanding LTCHs in the RY 2007 LTCH PPS proposed
rule. However, we do appreciate the commenters' response to the
concerns we raised in the proposed rule, and will take the comments
into account as we further consider this issue for possible future
rulemaking.
We did not receive any comments regarding our clarification of
``equivalent'' and ``comparable'' for IPPS payments. Therefore, we will
be finalizing this proposed clarification.
We received a significant number of comments that expressed
specific concerns about several features of the LTCH PPS that were
beyond the scope of this regulation and we will not be addressing them
at this time.

VII. Computing the Adjusted Federal Prospective Payments for the 2007
LTCH PPS Rate Year

In accordance with Sec. 412.525 and as discussed in section V.C.
of this final rule, the standard Federal rate is adjusted to account
for differences in area wages by multiplying the labor-related share of
the standard Federal rate by the appropriate LTCH PPS wage index (as
shown in Tables 1 and 2 of the Addendum to this final rule). The
standard Federal rate is also adjusted to account for the higher costs
of hospitals in Alaska and Hawaii by multiplying the nonlabor-related
share of the standard Federal rate by the appropriate cost-of-living
factor (shown in Table 8 in section V.D.2. of this preamble). In the RY
2006 LTCH PPS final rule (70 FR 24180), we established a standard
Federal rate of $38,086.04 for the 2006 LTCH PPS rate year. In the RY
2007 proposed rule (71 FR 4667 through 4670) we proposed that the
standard Federal rate for the 2007 LTCH PPS rate year would remain
$38,086.04. In this final rule, based on the best available data and
the policies described in this final rule, the standard Federal rate
for the 2007 LTCH PPS rate year will be $38,086.04 as discussed in
section V.C. of this preamble. We illustrate the methodology used to
adjust the Federal prospective payments for the 2007 LTCH PPS rate year
in the following examples:

Example: During the 2007 LTCH PPS rate year, a Medicare patient
is in a LTCH located in Chicago, Illinois (CBSA 16974). This LTCH is
in the fourth year of the wage index phase-in, thus, the four-fifths
wage index values are applicable. The four-fifths wage index value
for CBSA 16974 is 1.0632 (see Table 1 in the Addendum to this final
rule). The Medicare patient is classified into LTC-DRG 9 (Spinal
Disorders and Injuries), which has a relative weight of 0.9720 (see
Table 3 of the Addendum to this final rule).
To calculate the LTCH's total adjusted Federal prospective
payment for this Medicare patient, we compute the wage-adjusted
Federal prospective payment amount by multiplying the unadjusted
standard Federal rate ($38,086.04) by the labor-related share
(75.655 percent) and the wage index value (1.0632). This wage-
adjusted amount is then added to the nonlabor-related portion of the
unadjusted standard Federal rate (24.335 percent; adjusted for cost
of living, if applicable) to determine the adjusted Federal rate,
which is then multiplied by the LTC-DRG relative weight (0.9720) to
calculate the total adjusted Federal prospective payment for the
2007 LTCH PPS rate year ($38,789.92). Finally, as discussed in
section V.D.5. of this preamble, for the 2007 LTCH PPS rate year, we
are establishing a budget neutrality offset of 1.0 to the total
proposed adjusted Federal prospective payment to account for the
costs of the transition methodology.

The following illustrates the components of the calculations in the
example in Table 14.

Table 14
------------------------------------------------------------------------

------------------------------------------------------------------------
Unadjusted Standard Federal Prospective Payment Rate.... $38,086.04
Labor-Related Share..................................... x 0.75665
Labor-Related Portion of the Federal Rate............... = $28,817.80
\4/5\ Wage Index (CBSA 16974)........................... x 1.0632
Wage-Adjusted Labor Share of Federal Rate............... = $30,639.09
Nonlabor-Related Portion of the Federal Rate ($38,086.04 + $ 9,268.24
x 0.24335).............................................
Adjusted Federal Rate Amount............................ = $39,907.33

[[Page 27882]]

LTC-DRG 9 Relative Weight............................... x 0.9720
---------------
Total Adjusted Federal Prospective Payment (Before = $38,789.92
the Budget Neutrality Offset)......................
------------------------------------------------------------------------
Budget Neutrality Offset................................ x 1.0
---------------
Total Federal Prospective Payment (Including the = $38,789.92
Budget Neutrality Offset)..........................
------------------------------------------------------------------------

VIII. Transition Period

To provide a stable fiscal base for LTCHs, under Sec. 412.533, we
implemented a 5-year transition period whereby a LTCH (except those
defined as ``new'' under Sec. 412.23(e)(4)) receives payment
consisting of a portion based on reasonable cost-based reimbursement
under the TEFRA system and a portion based on the Federal prospective
payment rate (unless the LTCH elects payment based on 100 percent of
the Federal rate). Under the average pricing system, payment is not
based on the experience of an individual hospital. As discussed in the
August 30, 2002 final rule (67 FR 56038), we believe that a 5-year
phase-in provides LTCHs time to adjust their operations and capital
financing to the LTCH PPS, which is based on prospectively determined
Federal payment rates. Furthermore, we believe that the 5-year phase-in
of the LTCH PPS also allows LTCH personnel to develop proficiency with
the LTC-DRG coding system, which will result in improvement in the
quality of the data used for generating our annual determination of
relative weights and payment rates.
Under Sec. 412.533, the 5-year transition period for all hospitals
subject to the LTCH PPS begins with the hospital's first cost reporting
period beginning on or after October 1, 2002 and extends through the
hospital's last cost reporting period beginning before October 1, 2007.
During the 5-year transition period, a LTCH's total payment under the
LTCH PPS is based on two payment percentages: One based on reasonable
cost-based (TEFRA) payments and the other based on the standard Federal
prospective payment rate. The percentage of payment based on the LTCH
PPS Federal rate increases by 20 percentage points each year, while the
reasonable cost-based payment rate percentage decreases by 20
percentage points each year, for the next 4 fiscal years. For cost
reporting periods beginning on or after October 1, 2006, Medicare
payment to LTCHs will be determined entirely under the Federal rate.
The blend percentages as set forth in Sec. 412.533(a) are shown in
Table 15.

Table 15
------------------------------------------------------------------------
Reasonable
cost
Cost reporting periods beginning on or Federal rate principles
after percentage rate
percentage
------------------------------------------------------------------------
October 1, 2002......................... 20 80
October 1, 2003......................... 40 60
October 1, 2004......................... 60 40
October 1, 2005......................... 80 20
October 1, 2006......................... 100 0
------------------------------------------------------------------------

For cost reporting periods that begin on or after October 1, 2005,
and before October 1, 2006 (FY 2006), the total payment for an existing
LTCH that has not elected payment under 100 percent of the Federal
prospective payment rate is 20 percent of the amount calculated under
reasonable cost principles for that specific LTCH and 80 percent of the
Federal prospective payment amount. For cost reporting periods that
begin on or after October 1, 2006 (FY 2007), the total payment for a
LTCH will be zero percent of the amount calculated under reasonable
cost principles for that specific LTCH and 100 percent of the Federal
prospective payment amount. As we noted in the June 6, 2003 final rule
(68 FR 34155), the change in the effective date of the annual LTCH PPS
rate update from October 1 to July 1 has no effect on the LTCH PPS
transition period as set forth in Sec. 412.533(a). That is, LTCHs paid
under the transition blend under Sec. 412.533(a) will receive those
blend percentages for the entire 5-year transition period (unless they
elect payments based on 100 percent of the Federal rate). Furthermore,
LTCHs paid under the transition blend will receive the appropriate
blend percentages of the Federal and reasonable cost-based rate for
their entire cost reporting period as prescribed in Sec. 412.533(a)(1)
through (a)(5).
The reasonable cost-based rate percentage is a LTCH specific amount
that is based on the amount that the LTCH would have been paid (under
TEFRA) if the PPS were not implemented. Medicare FIs will continue to
compute the LTCH reasonable cost-based payment amount according to
Sec. 412.22(b) of the regulations and sections 1886(d) and (g) of the
Act.
In implementing the LTCH PPS, one of our goals is to transition
hospitals to prospective payments based on 100 percent of the adjusted
Federal prospective payment rate as soon as appropriate. Therefore,
under Sec. 412.533(c), we allow a LTCH (other than new LTCHs defined
at Sec. 412.23(e)(4)), which is subject to a blended rate, to elect
payment based on 100 percent of the Federal rate at the start of any of
its cost reporting periods during the 5-year transition period rather
than incrementally shifting from reasonable cost-based payments to
prospective payments based on 100 percent of the Federal rate. Once a
LTCH elects to be paid based on 100 percent of the Federal rate, it
will not be able to revert to the transition blend. For cost reporting
periods that began on or after December 1, 2002 through September 30,
2006, a LTCH must notify its FI in writing of its election on or before
the 30th day prior to the start of the LTCH's next cost reporting
period regardless of any postmarks or anticipated delivery dates. For
example, a LTCH with a cost reporting period that

[[Page 27883]]

begins on May 1, 2006, must have notified its FI in writing of an
election on or before April 1, 2006.
Under Sec. 412.533(c)(2)(i), the notification by the LTCH to make
the election must be made in writing to the Medicare FI. Under Sec.
412.533(c)(2)(iii), the FI must receive the request on or before the
specified date (that is, on or before the 30th day before the
applicable cost reporting period begins for cost reporting periods
beginning on or after December 1, 2002 through September 30, 2006),
regardless of any postmarks or anticipated delivery dates.
Requests received, postmarked, or delivered by other means after
the specified date in Sec. 412.533(c)(2)(iii) will not be accepted. If
the specified date falls on a day that the postal service or other
delivery sources are not open for business, the LTCH will be
responsible for allowing sufficient time for the delivery of the
request before the deadline. If a LTCH's request is not received
timely, payment will be based on the transition period blend
percentages.

IX. Payments to New LTCHs

Under Sec. 412.23(e)(4), for purposes of Medicare payment under
the LTCH PPS, we define a new LTCH as a provider of inpatient hospital
services that meets the qualifying criteria for LTCHs, set forth in
Sec. 412.23(e)(1) and (e)(2), and under present or previous ownership
(or both), has its first cost reporting period as a LTCH begin on or
after October 1, 2002. We also specify in Sec. 412.500 that the LTCH
PPS is applicable to LTCHs for cost reporting periods beginning on or
after October 1, 2002. As we discussed in the August 30, 2002 final
rule (67 FR 56040), this definition of new LTCHs should not be confused
with those LTCHs first paid under the TEFRA payment system for
discharges occurring on or after October 1, 1997, described in section
1886(b)(7)(A) of the Act, as added by section 4416 of the Balanced
Budget Act of 1997 (BBA) (Pub. L. 105-33). As stated in Sec.
413.40(f)(2)(ii), for cost reporting periods beginning on or after
October 1, 1997, the payment amount for a ``new'' (post-FY 1998) LTCH
is the lower of the hospital's net inpatient operating cost per case or
110 percent of the national median target amount payment limit for
hospitals in the same class for cost reporting periods ending during FY
1996, updated to the applicable cost reporting period (see 62 FR 46019,
August 29, 1997). Under the LTCH PPS, those ``new'' LTCHs that meet the
definition of ``new'' under Sec. 413.40(f)(2)(ii) and that have their
first cost reporting period as a LTCH beginning prior to October 1,
2002, will be paid under the transition methodology described in Sec.
412.533.
Under Sec. 412.533(d), new LTCHs will not participate in the 5-
year transition from reasonable cost-based reimbursement to prospective
payment. As we discussed in the August 30, 2002 final rule (67 FR
56040), the transition period is intended to provide existing LTCHs
time to adjust to payment under the new system. Since these new LTCHs
with their first cost reporting periods as LTCHs beginning on or after
October 1, 2002, would not have received payment under reasonable cost-
based reimbursement for the delivery of LTCH services prior to the
effective date of the LTCH PPS, we do not believe that those new LTCHs
require a transition period in order to make adjustments to their
operations and capital financing, as will LTCHs that have been paid
under the reasonable cost-based methodology.

X. Method of Payment

Under Sec. 412.513, a Medicare LTCH patient is classified into a
LTC-DRG based on the principal diagnosis, up to eight additional
(secondary) diagnoses, and up to six procedures performed during the
stay, as well as age, sex, and discharge status of the patient. The
LTC-DRG is used to determine the Federal prospective payment that the
LTCH will receive for the Medicare-covered Part A services the LTCH
furnished during the Medicare patient's stay. Under Sec. 412.541(a),
the payment is based on the submission of the discharge bill. The
discharge bill also provides data to allow for reclassifying the stay
from payment at the full LTC-DRG rate to payment for a case as a SSO
(under Sec. 412.529) or as an interrupted stay (under Sec. 412.531),
or to determine if the case will qualify for a high-cost outlier
payment (under Sec. 412.525(a)).
Accordingly, the ICD-9-CM codes and other information used to
determine if an adjustment to the full LTC-DRG payment is necessary
(for example, LOS or interrupted stay status) are recorded by the LTCH
on the Medicare patient's discharge bill and submitted to the Medicare
FI for processing. The payment represents payment in full, under Sec.
412.521(b), for inpatient operating and capital-related costs, but not
for the costs of an approved medical education program, bad debts,
blood clotting factors, anesthesia services by hospital-employed
nonphysician anesthetists, or the costs of photocopying and mailing
medical records requested by a Quality Improvement Organization (QIO),
which are costs paid outside the LTCH PPS.
As under the previous reasonable cost-based payment system, under
Sec. 412.541(b), a LTCH may elect to be paid using the periodic
interim payment (PIP) method described in Sec. 413.64(h) and may be
eligible to receive accelerated payments as described in Sec.
413.64(g).
For those LTCHs that are paid during the 5-year transition based on
the blended transition methodology in Sec. 412.533(a) for cost
reporting periods that began on or after October 1, 2002, and before
October 1, 2006, the PIP amount is based on the transition blend. For
those LTCHs that are paid based on 100 percent of the standard Federal
rate, the PIP amount is based on the estimated prospective payment for
the year rather than on the estimated reasonable cost-based
reimbursement. We exclude high-cost outlier payments that are paid upon
submission of a discharge bill from the PIP amounts. In addition, Part
A costs that are not paid for under the LTCH PPS, including Medicare
costs of an approved medical education program, bad debts, blood
clotting factors, anesthesia services by hospital-employed nonphysician
anesthetists and the costs of photocopying and mailing medical records
requested by a QIO, are subject to the interim payment provisions
(Sec. 412.541(c)).
Under Sec. 412.541(d), LTCHs with unusually long lengths of stay
that are not receiving payment under the PIP method may bill on an
interim basis (60 days after an admission and at intervals of at least
60 days after the date of the first interim bill) and ``should include
any high cost outlier payment determined as of the last day for which
the services have been billed.''

XI. Monitoring

In the August 30, 2002 final rule (67 FR 56014), we described an
on-going monitoring component to the new LTCH PPS. Specifically, we
discussed on-going analysis of the various policies that we believe
would provide equitable payment for stays that reflect less than the
full course of treatment and reduce the incentives for inappropriate
admissions, transfers, or premature discharges of patients that are
present in a discharge-based PPS. To this end, we have designed system
features utilizing MedPAR data that will enable CMS and the FI to track
beneficiary movement to and from a LTCH and to and from another
Medicare provider. We also stated our intent to collect and interpret
data on changes in average lengths of stay under the LTCH PPS for
specific LTC-DRGs and the impact of these changes on the Medicare
program. As a

[[Page 27884]]

result of our data analysis, we have revisited a number of our original
and even pre-LTCH PPS policies in order to address what we believe are
behaviors by certain LTCHs that lead to inappropriate Medicare
payments. In recent Federal Register publications, we have proposed and
subsequently finalized revisions to the interruption of stay policy (69
FR 25692), and we established a payment adjustment for LTCH HwHs and
satellites (69 FR 49191).
On-going data analysis was also the basis for three of the issues
that we had addressed in the proposed rule. As noted in section V., we
are ``sunsetting'' the surgical DRG exception to the 3 day or less
interruption of stay policy at Sec. 412.531(b)(2)(A)(1). We determined
that eliminating this exception will not result in significant hardship
for LTCHs. Our analyses of discharges between acute care hospitals and
LTCHs revealed that a significant number of LTCHs that are not co-
located with other hospital-level providers (as defined in Sec.
412.22(e) and Sec. 412.22(h)), also admit their patients from one
specific acute care hospital. When we established the payment
adjustment for LTCH HwHs and satellites of LTCHs at Sec. 412.534, we
reiterated our concern that these on-site LTCHs could be functioning as
units of their host (generally, an acute care hospital), a
configuration that is not envisioned in section 1886(d)(1)(B) of the
Act. The statute specifically allows only for IRF and IPF units in
acute care hospitals but not for LTCH units. In section V. of the
proposed rule, we had suggested that we would be looking into the
possibility of extending the payment adjustment established under Sec.
412.534 for LTCH HwHs and satellites of LTCHs to all LTCHs including
freestanding LTCHs that we believe are LTCHs functioning as step-down
units of a hospital. In making any such decision in the future, we will
take into account comments that we received on this issue. In addition,
as a result of our analysis and on-going monitoring protocols, we are
establishing a zero percent update to the Federal payment rate for RY
2007, which is explained in detail in section IV.
As we discussed in the June 6, 2003 final rule (68 FR 34157), the
Medicare Payment Advisory Commission (MedPAC) endorsed our monitoring
activity as a primary aspect of the design and on-going functioning of
the LTCH PPS. Furthermore, the Commission pursued an independent
research initiative that led to a section in MedPAC's June 2004 Report
to Congress entitled ``Defining long-term care hospitals''. This study
included recommendations that we develop facility and patient criteria
for LTCH admission and treatment and that we require a review by
Quality Improvement Organizations (QIO) to evaluate whether LTCH
admissions meet criteria for medical necessity once the recommended
facility and patient criteria are established.
Therefore, in addition to pursuing our on-going monitoring program
under the direction of ORDI, existing QIO monitoring and studies
described in the RY 2006 LTCH PPS final rule (70 FR 24211), and our
considerations of expanding the QIO role in the LTCH PPS, we awarded a
contract to Research Triangle Institute, International (RTI) in
September 2004 for a thorough examination of the feasibility of
implementing MedPAC's recommendations in the June 2004 Report to
Congress (which we detail in section XII. of this final rule). In the
RY 2005 LTCH PPS final rule, we noted that this research contract,
which was funded for FY 2005 was presently being executed and
therefore, we presented specifics of the RTI project in the RY 2007
LTCH PPS proposed rule. In this final rule, as noted previously, we
have included a section that describes RTI's analyses.
Comment: One commenter asked why CMS continues to issue changes to
the LTCH PPS rather than letting market forces determine its direction.
Another commenter also invoked the marketplace in asserting that the
large increase in the number of LTCHs is market-driven, that is, if the
operators were not sensing a need and patients were not coming, the
number of LTCHs would not be growing. The commenter suggested that CMS
should not be concerned about the rapid growth in this provider type
and allow the market to regulate growth.
Response: We disagree with the commenters' suggestions that CMS
should not continue to issue changes to the LTCH PPS, but rather let
market forces determine its direction. In establishing the Medicare
system, the Congress imposed the responsibility to provide health
insurance for Medicare beneficiaries. The mandate for implementing the
Medicare program tasks CMS with fiduciary responsibilities that require
us to develop an effective and efficient payment system to finance the
delivery of medical services to beneficiaries who have financed
Medicare as taxpayers and who depend upon the program as their primary
health insurance when they retire. In order to meet these
responsibilities, CMS established a regulatory framework governing the
payment for those health care services covered by Medicare for program
beneficiaries in a manner that protects both the trust fund and the
program recipient against those forces in the market place that may be
driven primarily by a desire to maximize Medicare payments. Therefore,
our objective in issuing LTCH regulations for all aspects of the health
care delivery system as it impacts Medicare beneficiaries, is to be a
prudent purchaser of medical services. Our awareness of market forces,
our monitoring programs and data analyses, and information garnered
from our regional offices and FIs indicate to us that the remarkable
growth in the number of LTCHs during the last several years may be for
the most part, driven by the opportunity to earn large profits on the
treatment of Medicare patients. Therefore, we proposed and ultimately
are finalizing regulations that we believe further our mandated role as
a prudent purchaser of medical services and also as guardian of the
Medicare Trust Fund. Accordingly, we believe that in an industry where
Medicare is by far the primary payer for services provided, we cannot
rely solely on market forces to determine how much the program should
pay for beneficiary care.

XII. MedPAC Recommendations

A. Discussion of MedPAC's March 2006 Report to Congress: Medicare
Payment Policy

On March 1, 2006, MedPAC released its Report to Congress: Medicare
Payment Policy fulfilling its legislative mandate to evaluate Medicare
policy issues and make specific recommendations to Congress. In the
March 2006 Report, MedPAC included a discussion of LTCH payments and
the resultant recommendation by the Commission in Chapter 4C, Long-term
care hospital services. MedPAC found that Medicare payments for LTCH
services are more than adequate, basing this conclusion on various
measures including, but not limited to, access to care, volume
services, and supply of facilities. MedPAC recommended to the Congress
that the update to payment rates for LTCH services should be eliminated
for FY 2007.
As discussed in the final rule, because we believe that current
payments are more than adequate to account for price increases in the
services furnished by LTCHs during the 2007 LTCH PPS rate year, under
the broad authority conferred upon the Secretary by section 123 of the
Balanced Budget Refinement Act (BBRA) as amended by section 307(a) of
the Budget Improvement and

[[Page 27885]]

Protection Act (BIPA) to include appropriate adjustments in the
establishment of the LTCH PPS, we are revising our regulations to
specify that for discharges occurring on or after July 1, 2006 and on
or before July 31, 2007, the standard Federal rate from the previous
year would be updated by a factor of zero percent. We note that our
decision to apply a zero update is consistent with the recommendation
the Commission made to the Congress. Further discussion of this issue
can be found in section XX of the final rule.

B. RTI Report on MedPAC's June 2004 Recommendations

In the RY 2006 LTCH PPS final rule (70 FR 24209), we discussed
Chapter 5 of MedPAC's June 2004 Report to Congress (RTC), ``Defining
Long-Term Care Hospitals''. In that Report, the Commission recommended
that the Congress and the Secretary define LTCHs by facility and
patient criteria to ensure that patients admitted to LTCH facilities
are medically complex and have a good chance of improvement. In
addition, the Commission recommended expanding the statement of work
for the Quality Improvement Organizations (QIOs) to enable them to
monitor LTCH compliance with any newly-established hospital and patient
criteria.
As detailed in that same final rule, in response to the
recommendation in MedPAC's June 2004 Report, on September 27, 2004, we
awarded a contract to Research Triangle Institute, International (RTI)
for a thorough examination of the feasibility of implementing the
Commission's recommendations based on the performance of a wide variety
of analytic tasks using CMS data files, and information RTI would
collect from physicians, providers, and LTCH trade associations. This
contract, ``Long Term Care Hospital Payment System Refinement/
Evaluation,'' will result in a report that will assist CMS in the
evaluating the development of criteria for assuring appropriate and
cost-effective use of LTCHs in the Medicare program. With the
recommendations of MedPAC's June 2004 Report to Congress as a point of
departure, RTI evaluated the feasibility of developing patient and
facility level characteristics for LTCHs in order to identify and
distinguish the role of these hospitals as a Medicare provider.
RTI's project plan was completed in two phases. Phase I focused on
an analysis of LTCHs within the current Medicare system: Their history
as participating providers; their case mix; the criteria currently used
by QIOs to determine the appropriateness of treatment in LTCHs; and the
site of care for patients treated in areas that lack LTCHs. RTI
reviewed prior analyses of these issues by MedPAC and other contractors
(such as the Urban Institute, 3M Health Information Systems, and The
Lewin Group) and conducted additional discussions with MedPAC, other
researchers, and the QIOs. Building on the work of Phase I, Phase II
addressed the feasibility of MedPAC's proposed criteria based on a
three-pronged approach: Medicare claims analysis to examine patient
differences across settings; interviews with QIOs and providers to
examine level of care definitions currently being used or tested; and
finally site visits to interview providers with the objective of
distinguishing LTCHs from other inpatient settings for payment
purposes. During October through December 2005, RTI scheduled and
conducted site visits to LTCHs throughout the country that are
representative of the various types of LTCHs. A team of RTI researchers
and CMS analysts, including a physician, participated in these visits.
We anticipate that RTI will submit their final report to us in late
Spring of 2006. We note that while this report may have a substantial
impact on future Medicare policy for LTCHs, we still believe that even
with the development of defined patient and perhaps facility-level
criteria, that the retention of many of the specific payment adjustment
features of the LTCH PPS presently in place may still be both necessary
and appropriate for purposes of protecting the integrity of the
Medicare trust fund.

XIII. Health Care Information Transparency Initiative

In the FY 2007 Hospital Inpatient Prospective Payment System
proposed rule (71 FR 23996), we discussed in detail the Health Care
Information Transparency Initiative and our efforts to promote
effective use of health information technology (HIT) as a means to help
improve health care quality and improve efficiency. Specifically, for
the transparency initiative, we discussed several potential options for
making pricing and quality information available to the public (71 FR
24120 through 24121). We solicited comments on the ways HHS can
encourage transparency in health care quality and pricing whether
through its leadership on voluntary initiatives or through regulatory
requirements. We also are seeking comment on the HHS's statutory
authority to impose such requirements.
In addition, we discussed the potential for HIT to facilitate
improvements in the quality and efficiency of health care services (71
FR 24100 through 24101). We solicited comments on our statutory
authority to encourage the adoption and use of HIT. The 2007 Budget
states that ``the Administration supports the adoption of health
information technology (IT) as a normal cost of doing business to
ensure patients receive high quality care.'' We also are seeking
comments on the appropriate role of HIT in a potential value-based
purchasing program, beyond the intrinsic incentives of a prospective
payment system to provide efficient care, encourage the avoidance of
unnecessary costs, and increase quality of care. In addition, we are
seeking comments on the promotion of the use of effective HIT through
Medicare conditions of participation.
We intend to consider both the health care information transparency
initiative and the use of HIT as we refine and update all Medicare
payment systems. Therefore, while these initiatives are not included in
this final rule, we are in the process of seeking input on these
initiatives in various proposed Medicare payment rules being issued
this year and may pursue these policies in future rulemaking for the
LTCH PPS.

XIV. Collection of Information Requirements

In the RY 2007 LTCH PPS proposed rule (71 FR 4648), we outlined the
collection of information requirements associated with the provisions
presented in that rule.
In summary, section 412.525(a)(4)(iv)(A) proposed that CMS may
specify an alternative to the cost-to-charge ratio otherwise applicable
under paragraph (a)(4)(iv)(B) of this section. In addition, a hospital
may also request that its FI use a different (higher or lower) CCR
based on substantial evidence provided by the hospital. The burden
associated with this requirement is the time and effort necessary for a
hospital to gather, process, and submit the necessary documentation to
its FI to substantiate its request for the use of a different CCR by
their FI. For example, necessary documentation, as stipulated by CMS
and the FI, may include but not be limited to financial records
documenting the hospital's cost and charges.
Section 412.529(c)(4)(iv)(A) proposed that CMS may specify an
alternative to the CCR otherwise applicable under paragraph
(c)(4)(iv)(B) of this section. In addition, a hospital may also request
that its FI use a different (higher or lower) CCR based on substantial
evidence provided by the hospital. The burden associated with this
requirement

[[Page 27886]]

is the time and effort necessary for a hospital to gather, process, and
submit the necessary documentation to its FI to substantiate its
request for the use of a different CCR by their FI. For example,
necessary documentation, as stipulated by CMS and the FI, may include
but not be limited to financial records documenting the hospital's cost
and charges.
The aforementioned information collection requirements were
proposed again in the FY 2007 IPPS proposed rule, and to the extent
they are implemented, will be presented in the FY 2007 IPPS final rule
published this summer in the Federal Register. Prior to the publication
of the IPPS final rule, we will submit a formal information collection
request to the Office of Management and Budget (OMB) for its review and
approval of the information collection requirements described above.
These requirements are not effective until they have been approved by
OMB.

XV. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Act, the Unfunded Mandates Reform Act of
1995 (UMRA) (Pub. L. 104-4), and Executive Order 13132.
1. Executive Order 12866
Executive Order 12866 (as amended by Executive Order 13258, which
merely assigns responsibility of duties) directs agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any one
year). We are using the rates, factors and policies presented in this
final rule, including updated wage index values, and the best available
claims data to estimate payments for the 2007 LTCH PPS rate year. Based
on the best available data for 347 LTCHs, we estimate that the change
to the SSO policy (as discussed in section VI.A.1. of the preamble of
this final rule) for the 2007 LTCH PPS rate year, in conjunction with
the changes to the area wage adjustment (discussed in section V.D.1. of
the preamble of this final rule), and the increase in the outlier
fixed-loss amount (discussed in section V.D.3.c. of the preamble of
this final rule), will result in a decrease in estimated payments from
the 2006 LTCH PPS rate year of approximately $156 million for the 347
LTCHs. (An estimate of Medicare program payments for LTCH services for
the next 5 years is shown in section XV.B.5. of the preamble of this
final rule.) Because the combined distributional effects and costs to
the Medicare program are greater than $100 million, this final rule is
considered a major economic rule, as defined in this section.
2. Regulatory Flexibility Act (RFA)
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$6 million to $29 million in any 1 year. For purposes of the RFA, all
hospitals (and most other providers and suppliers) are considered small
entities according to the Small Business Administration's latest size
standards (for further information, see the Small Business
Administration's regulation at 65 FR 69432, November 17, 2000). Because
we lack data on individual hospital receipts, we cannot determine the
number of small proprietary LTCHs. Therefore, we assume that all LTCHs
are considered small entities for the purpose of the analysis that
follows. Medicare FIs are not considered to be small entities.
Individuals and States are not included in the definition of a small
entity.
Currently, our database of 347 LTCHs includes the data for 69 non-
profit (voluntary ownership control) LTCHs and 232 proprietary LTCHs.
Of the remaining 46 LTCHs, 10 LTCHs are Government-owned and operated
and the ownership type of the other 36 LTCHs are unknown (see Table
16). The impact of the changes for the 2007 LTCH PPS rate year is
discussed below in section XV.B.4.c. of the preamble of this final
rule. The provisions of this final rule are estimated to result in
approximately a 3.7 percent decrease in estimated payments per
discharge in the 2007 LTCH PPS rate year on average to LTCHs (as shown
in Table 16). As discussed in greater detail below in this section (and
as shown in Table 16), the majority of the approximately 3.7 percent
decrease in estimated payments in the 2007 LTCH PPS rate year as
compared to the 2006 LTCH PPS rate year is due to the change in the
payment formula for SSO cases (discussed in section VI.A.1.a. of the
preamble of this final rule). We do not believe that this change will
result in an adverse impact on affected LTCHs for the reasons discussed
below in this section. We believe that the revisions to the SSO policy
established in this final rule will accomplish our stated goal of
removing the incentive for LTCHs to admit patients for whom a long-term
hospital stay is not necessary and therefore, for whom the LTCH would
not be providing complete treatment. Furthermore, we believe the
revisions to the SSO policy will result in appropriate payments for
those relatively shorter LOS cases.
As we discuss in greater detail in section VI.A.1.a. of the
preamble of this final rule, currently about 37 percent of all LTCH
cases are SSOs, most of which were admitted to the LTCH directly from
an acute-care hospital. Of these almost 48,000 LTCH SSO cases from FY
2005, about 60 percent have a LOS of less than or equal to 14 days, of
which almost 24 percent have a LOS of less than or equal to 7 days.
Thus, many short-stay cases may be still in need of acute-level care at
the time of admission to the LTCH, which may indicate a premature and
inappropriate discharge from the acute-care hospital and an
inappropriate admission to a LCTH. Moreover, many of these very short-
stay cases most likely do not receive a full course of a LTCH-level of
treatment in such a short period of time since LTCHs generally are
intended to treat patients with an ALOS of greater than 25 days, and
therefore, we believe that the changes to the SSO policy will result in
more appropriate payments for short-stay cases treated at LTCHs. We
believe that by paying appropriately for these SSO cases and removing
the financial incentive for LTCHs to admit those very short stay cases
that could otherwise receive appropriate treatment at an acute-care
hospital (and be paid under the IPPS), LTCHs will change their
admission patterns for these patients. Specifically, we believe that in
response to the implementation of the revision to the SSO payment
formula, most LTCHs will significantly reduce the number of very short-
stay cases that they admit (and most of those patients will continue to
receive treatment at the acute-care hospital from which they are
typically discharged immediately prior to their LTCH (short-stay)
admission).
The estimated 3.7 percent decrease in LTCH PPS payments for RY 2007
was determined based on the current LTCH

[[Page 27887]]

admission pattern of SSO cases (that is, currently about 37 percent of
all LTCH cases, of which about 60 percent have a LOS of less than or
equal to 14 days). Thus, we believe that the estimated 3.7 percent
decrease in LTCH payments per discharge for RY 2007 will only occur if
LTCHs were to continue to admit the same number and type of SSO
patients. Since the majority of the decrease in estimated payments is
due to the change in the SSO policy and since we anticipate that LTCHs
will no longer admit such a large number of VSSO patients when these
changes are implemented, we believe that the actual decrease in LTCHs'
payments for RY 2007 will be less than estimated 3.7 percent. (Although
we expect LTCHs to admit fewer cases under this change, we believe that
most LTCHs, which are HwHs, will not experience an increase in cost per
discharge as a result of unoccupied beds. Rather, we expect that LTCHs
will make a commensurate reduction in available beds. LTCHs will lease
fewer beds, and therefore, the LTCHs' cost per discharge will not
increase dramatically.)
Furthermore, our Medicare margins analysis of the most recent LTCH
cost report data, show that LTCH PPS Medicare margins for FY 2003 were
7.8 percent, and preliminary cost report data for FY 2004 reveal an
even higher Medicare margin of 12.7 percent (as discussed in greater
detail in section IV.C.3. of the preamble to this final rule). Since
LTCH PPS payments appear to be more than adequate to cover the costs of
the efficient delivery of care to patients at LTCHs, based on this
margins analysis, we believe that even with an estimated 3.7 percent
decrease in LTCHs' payments per discharge for the 2007 LTCH PPS rate
year, which may result from, among other things, the continued
treatment of some short-stay cases and the estimated slight decrease in
aggregate payments due to the changes to the area wage adjustment (see
Table 16), LTCH PPS payments in RY 2007 will still be sufficient to
compensate LTCHs for the costs of the efficient delivery of LTCH
services to LTCH patients. (As noted above, LTCH PPS Medicare margins
(7.8 percent for FY 2003 and 12.7 percent for FY 2004) appear to be at
least twice the estimated percent decrease in Medicare payments for RY
2007 (3.7 percent).) Thus, we do not expect that the provisions of this
final rule will result in an adverse financial impact on affected LTCHs
nor will there be an effect on beneficiaries' access to care.
For the reasons discussed above, we do not expect an estimated
decrease of 3.7 percent to the LTCH PPS Medicare payment rates to have
a significant adverse effect on the ability of most LTCHs to provide
cost efficient services to Medicare patients. In addition, LTCHs
provide some services to (and generate revenue from) patients other
than Medicare beneficiaries, and therefore, the revenue to LTCHs from
treating those patients is not affected by this final rule.
Accordingly, we certify that this final rule will not have a
significant impact on a substantial number of small entities, in
accordance with the RFA.
3. Impact on Rural Hospitals
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a rule may have a significant impact on the
operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. As shown in Table 16, we
are estimating a 5.8 percent decrease in payment per discharge for the
2007 LTCH PPS rate year as compared to the 2006 LTCH PPS rate year
based on the data of the 22 rural hospitals in our database of 347
LTCHs for which complete data were available.
As shown below in Table 16, the majority of the estimated decrease
in payments in the 2007 LTCH PPS rate year as compared to the 2006 LTCH
PPS rate year for rural LTCHs is due to the change in the area wage
adjustment (as discussed in greater detail in section V.D.1. of the
preamble of this final rule). Specifically, because all rural LTCHs are
located in areas with a wage index value that is less than 1.0, the
increase in the labor-related share for RY 2007 that we are
establishing in this final rule (discussed in section IV.d.1.c. of the
preamble) is expected to result in an estimated decrease in payments to
rural LTCHs. We also note that, although we are not making any changes
to the 5-year phase-in of the wage index adjustment that was
established when the LTCH PPS was implemented (August 30, 2002; 67 FR
56018), the continued progression of this phase-in also contributes to
the estimated decrease in payments to rural LTCHs for RY 2007.
Specifically, since under the established phase-in of the wage-index
adjustment, LTCHs receive an increasing amount of the applicable full
wage index value (which is less than 1.0 for all rural LTCHs), we
expect that rural LTCHs payments per discharge will decrease from RY
2006 to RY 2007 as a result of the progression of the 5-year phase-in
of the wage index adjustment. Thus, a portion of the estimated 2.9
percent decrease in payments per discharge for rural LTCHs due to
changes in the wage index adjustment (see Table 16) is due to the
established 5-year phase-in of the wage index adjustment and is not due
to policy changes established in this final rule.
Furthermore, we continue to believe that payments to rural LTCHs in
RY 2007 will be adequate to cover the cost of the efficient delivery of
LTCH services to Medicare Patients. Based on our recent margins
analysis (discussed in section IV.C.3. of this final rule), LTCH
margins for FY 2003 are in excess of 7 percent, and preliminary FY 2004
data show margins in excess of 12 percent. Moreover, margins for rural
LTCHs for FY 2003 are in excess of 9 percent, and preliminary FY 2004
data shows margins in excess of 11 percent for rural LTCHs. Therefore,
based on the positive margins for rural LTCHs, we believe that even
with an estimated decrease in LTCHs' payments per discharge for the
2007 LTCH PPS rate year, LTCH PPS payments to rural LTCHs will be
sufficient to compensate LTCHs for the costs of the efficient delivery
of LTCH services to LTCH patients.
The payment formula for SSO cases (discussed in section VI.A.1.a of
the preamble of this final rule) also contributes to the estimated
decrease in payments to rural LTCHs for RY 2007. However, we do not
believe that this change will result in an adverse impact on rural
LTCHs because, as a result of this change, we believe that LTCHs
(including rural LTCHs) will significantly reduce the number of short-
stay cases that they admit since this policy is expected to remove the
financial incentive for LTCHs to treat very short-stay cases by paying
appropriately for them. Furthermore, although most LTCHs (including
rural LTCHs) are expected to admit fewer short-stay cases upon
implementation of the changes to the SSO policy, most of those patients
would continue to receive treatment at the acute-care hospital from
which they are typically discharged from immediately prior to their
LTCH (short-stay) admission, and most LTCHs (which are HwHs) would not
experience an increase in cost per discharge as a result of unoccupied
beds.
The estimated 5.8 percent decrease in LTCH PPS payments for RY 2007
for rural LTCHs was determined based on the current LTCH admission
pattern of SSO cases (that is, currently about 37 percent of all LTCH
cases) of which about 60 percent have a LOS of less than

[[Page 27888]]

or equal to 14 days. Thus, we believe that the estimated 5.8 percent
decrease in LTCH payments per discharge for RY 2007 for rural LTCHs
will only occur if rural LTCHs continue to admit the same number and
type of SSO patients. Since half of the approximately 5.8 percent
decrease in estimated payments for rural LTCHs is due to the change in
the SSO policy and since we anticipate that LTCHs (including rural
LTCHs) will no longer admit such a large number of SSO patients for
whom payments will be affected by this change to the SSO payment
formula (in particular, those with a very short LOS) when these changes
are implemented, we believe that the actual decrease in rural LTCHs'
payments for RY 2007 will be considerably less than 5.8 percent.
Therefore, we believe that the estimated 5.8 percent decrease in
payments per discharge for the 2007 LTCH PPS rate year for rural LTCHs
will only occur if LTCHs maintain the same level and type of SSO
patients.
Since, for the reasons discussed in this section, we believe that
any decrease in rural LTCH's payments per discharge from RY 2006 to RY
2007 will be less than the estimated decrease of 5.8 percent shown in
Table 16, we are unable to determine whether the changes established in
this final rule would have a significant adverse effect on rural LTCHs.
However, as explained above, do not expect that the provisions of this
final rule will affect the ability of the vast majority of rural LTCHs
to provide cost efficient services to Medicare patients nor do we
expect there will be an effect on beneficiaries' access to care. (For
additional information on the impact of the changes on rural LTCHs
presented in this final rule, refer to the discussion of the impact
analysis in section XV.B.4 of this final rule.)
4. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any one year of
$100 million in 1995 dollars, updated annually for inflation. That
threshold level is currently approximately $120 million. This final
rule will not mandate any requirements for State, local, or tribal
governments, nor will it result in expenditures by the private sector
of $120 million or more in any one year.
5. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it publishes a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications.
We have examined this final rule under the criteria set forth in
Executive Order 13132 and have determined that this final rule will not
have any significant impact on the rights, roles, and responsibilities
of State, local, or tribal governments or preempt State law, based on
the 10 State and local LTCHs in our database of 347 LTCHs for which
data are available.
6. Summary of Comments and Responses on the RY 2007 Proposed Rule
Regulatory Impact Analysis
In section XIII of the RY 2007 LTCH PPS proposed rule (71 FR 4727
through 4747), in accordance with Executive Order 12866 (September
1993, Regulatory Planning and Review), the RFA (September 19, 1980,
Pub. L. 96-354), section 1102(b) of the Act, the UMRA (Pub. L. 104-4),
and Executive Order 13132, we examined the impact of the provisions
presented in that proposed rule. Specifically, we discussed the impact
of the proposed changes to the payment rates, factors, and policies
presented in that proposed rule in terms of their fiscal impact on the
Medicare budget and on LTCHs under the provisions referenced above.
Comment: Some commenters suggested that CMS should reconsider the
regulatory impact of the proposed rule and issue a revised RIA, as well
as allow for comment on the revised RIA. Specifically, the commenters
state that ``the proposed 11.1 percent decrease in LTCH PPS payments is
based upon unreliable data and analyses by CMS and, as a result, the
projections set forth in the RIA are conjecture at best.'' Therefore,
the commenters believe that the LTCH industry is unable to ``* * *
evaluate, meaningfully comment, and rely * * *'' on CMS' conclusions
set forth in the RIA. The commenters believe the RIA does not provide
discussion on how ``the statutorily-mandated budget neutrality of the
LTCH PPS * * *'' will be maintained and disagrees with CMS' statement
that it does not anticipate any changes in Medicare beneficiary access
to services or in quality of patient care while there is currently a
11.1 percent reduction in LTCH payments due to reductions in SSO
payments, a 4.2 percent decrease due to the LTC DRGs being reweighted,
as well as a proposed zero market basket update, and revisions to the
guidelines for using DRG 475. Another commenter stated that CMS failed
to do any analysis to demonstrate that the proposed estimated 11.1
percent payment decrease and proposed zero percent update maintains a
budget neutral LTCH PPS, as required by statute.
Response: CMS strongly disagrees with the commenters' assertion
that ``projections set forth in the RIA are conjecture at best.''
Projections in the RIA of the RY 2007 LTCH PPS proposed rule modeled
proposed policy changes that included proposed changes to SSO payments,
expected case-mix index changes, the proposed changes to the area wage
adjustment, and the proposed changes to HCO payments. The results of
the payment models shown in the RIA used LTCH Medicare cost report data
from the most recent update of the HCRIS files and Medicare claims data
from the most recent update of the MedPAR files. We also relied upon
provider information from the Online Survey Certification and Reporting
(OSCAR) database and from the provider specific file (PSF), which is a
file that is maintained by the FIs and is used in paying Medicare
provider claims. These are the best and most reliable data sources
available to CMS for modeling the impacts of policy changes. We note
that these same databases are used in modeling payment impacts under
the IPPS, the outpatient PPS, the IRF PPS and the IPF PPS, as well as
other Medicare payment systems.
As we stated in the RY 2007 LTCH PPS proposed rule, to estimate the
impacts among the various categories of providers during the LTCH PPS
transition period, it is necessary that reasonable cost-based
methodology payments and prospective payments contain similar inputs.
More specifically, in the impact analysis showing the impact reflecting
the applicable transition blend percentages of prospective payments and
reasonable cost-based methodology payments and the option to elect
payment based on 100 percent of the proposed Federal rate, we estimated
payments only for those providers for whom we are able to calculate
payments based on reasonable cost-based methodology. For example, if we
did not have at least 2 years of historical cost data for a LTCH, we
were unable to determine an update to the LTCH's target amount to
estimate payment under reasonable cost-based methodology. Thus, for
that impact analysis (shown in Table 23 of the RY 2007 LTCH PPS
proposed rule (71 FR 4732 through 4733)), we used data from 259 LTCHs.
Since cost data to determine payments under the reasonable cost-based
methodology were not needed to simulate payments based on 100 percent

[[Page 27889]]

of the proposed Federal rate, we were able to project the impact
analyses reflecting fully phased-in prospective payments using data
from 337 LTCHs (as shown in Table 24 of the RY 2007 LTCH PPS proposed
rule (71 FR 4734 through 4735)).
The RIA in the RY 2007 LTCH PPS proposed rule, showing both the
impact on providers in the transition period and the impact of the
fully phased-in LTCH PPS, which was made available to the public,
provided commenters with an opportunity to provide CMS with comments.
In response to the commenters' belief that the RIA is based on unsound
data, we remind the commenters that, as in every year since the
inception of the LTCH PPS, the public has had occasion to access the
data files used by CMS in determining changes to the LTCH PPS payment
policy through communication with our Office of Information Services
(OIS). (Information about obtaining MedPAR files and other Medicare
data files is posted on the CMS Web page at: http://www.cms.hhs.gov/FilesForOrderGenInfo/.) Additionally, the impact data used in the
development of the RIA were posted on the CMS Web site for public
review. We note that reports based on evaluation of these data sources
by two different entities were quoted liberally in many of the comments
that we received on the RY 2007 proposed rule. Therefore, we do not
agree with the assertion by this commenter that commenters in general
were unable to meaningfully evaluate the data.
We believe that commenters when referring to the budget neutrality
requirement mean a system-wide budget neutrality requirement. A system-
wide budget neutrality requirement means, specifically, payments under
the LTCH PPS are always estimated to equal estimated system-wide (that
is, aggregate) payments that would have been made under the reasonable
cost-based (TEFRA) payment methodology if the LTCH PPS were not
implemented. We disagree with the commenters that the RIA presented in
the RY 2007 LTCH PPS proposed rule should have discussed ``the
statutorily-mandated budget neutrality of the LTCH PPS'' or that
proposed estimated 11.1 percent payment decrease and proposed zero
percent update violates the statutory requirement that the LTCH PPS be
budget neutral. We note that under section 123(a) of the BBRA, the
Congress required that the Secretary develop ``* * * a per discharge
prospective payment system for payment for inpatient hospital services
of long-term care hospitals described in section 1886(d)(1)(B)(iv) of
Act (42 U.S.C. 1395ww(d)(1)(B)(iv)) under the Medicare program. Such
system shall include an adequate patient classification system that is
based on diagnosis-related groups (DRGs) and that reflects the
differences in patient resource use and costs, and shall maintain
budget neutrality.'' We have interpreted the requirement to ``maintain
budget neutrality'' to require that the Secretary set total estimated
prospective payments for FY 2003 equal to estimated payments that would
have been made under the TEFRA methodology if the prospective payment
system for LTCHs was not implemented. It has been our consistent
interpretation that the statutory requirement for budget neutrality
applies exclusively to FY 2003. In FY 2003, we set total estimated LTCH
PPS payments for FY 2003 equal to estimated payments that would have
been made under the TEFRA methodology if the prospective payment system
for LTCHs was not implemented. Consequently, we believe that we have
satisfied the budget neutrality requirement under the statute.
Moreover, we have broad discretionary authority under section 123(a)(1)
of the BBRA as amended by section 307(b)(1) of the BIPA to provide
appropriate adjustments, including updates. Thus, we are acting within
that broad authority in establishing policy changes in this final rule,
including a zero percent update to the Federal rate for RY 2007
(discussed in section V.C.3. of the preamble of this final rule)and
changes to the SSO payment formula (discussed in section IV.A.1.a. of
the preamble of this final rule).
There are several reasons that we do not believe that the Congress
intended perpetual system-wide budget neutrality. We note below a
partial list of these reasons. For example, a system-wide budget
neutrality requirement that applies perpetually would affect the
Secretary's ability to operate the prospective payment system for LTCHs
efficiently. To illustrate, if the Secretary were to propose to adjust
payments upward in a particular instance because he finds that payments
are ``too low,'' under a perpetual budget neutral system the Secretary
would be forced to reduce estimated payments for other cases in order
to fund the additional costs associated with the proposed adjustment.
However, this shifting of resources may then cause payments to LTCHs
for those cases that were being reduced to offset the proposed
adjustment to then be inappropriately ``too low.'' We do not believe
the Congress intended such a result for every adjustment that will be
made to the LTCH PPS in perpetuity. Rather, as with all dynamic and
evolving systems, we believe that based upon monitoring and the
analysis of data, the Secretary has the discretion and obligation to
formulate polices and establish payment adjustments that will pay LTCHs
appropriately for beneficiary care.
Also, we note that none of the statutory charges for the other
prospective payment systems (that is, IPPS, SNF PPS, IRF PPS) require
system-wide budget neutrality for perpetuity. We are not aware of
anything unique about LTCHs or the need to establish a LTCH PPS that
would have compelled the Congress to legislate a system that mandates
budget neutrality in perpetuity. Consequently, we do not believe that
in the instant case, the Congress departed from its consistent approach
with respect to budget neutrality and intended to create a statute
which applies a completely different standard to the LTCH PPS.
As we discussed in the RY 2007 LTCH PPS proposed rule (71 FR 4728)
and as we reiterated in this RIA, although most LTCHs are expected to
admit fewer short-stay cases upon implementation of the changes to the
SSO policy, the majority of those patients would continue to receive
treatment at the acute-care hospital from which they are typically
discharged from immediately prior to their LTCH (short-stay) admission,
and most LTCHs (which are HwHs) would not experience an increase in
cost per discharge as a result of unoccupied beds. Furthermore, as we
discuss in section IV.C.3. of the preamble of this final rule, our
Medicare margins analysis of the most recent LTCH cost report data
shows a 7.8 percent Medicare margin for FY 2003, and preliminary cost
report data for FY 2004 reveal an even higher Medicare margin of 12.7
percent. Since LTCH PPS payments appear to be more than adequate to
cover the costs of the efficient delivery of care to patients at LTCHs,
based on this margins analysis, we believe that even with an estimated
3.7 percent decrease in LTCHs' payments per discharge for the 2007 LTCH
PPS rate year, those payments will still be sufficient to compensate
LTCHs for the costs of the efficient delivery of LTCH services to LTCH
patients. (As noted above, LTCH PPS Medicare margins (7.8 percent for
FY 2003 and 12.7 percent for FY 2004) appear to be at least twice the
estimated percent decrease in Medicare payments for RY 2007 (3.7
percent).) Therefore, we do not believe that the estimated decrease in
LTCH PPS payments for RY 2007 will result in an adverse financial

[[Page 27890]]

impact on affected LTCHs nor will there be an effect on beneficiaries'
access to care or in quality of patient care.
Comment: Several commenters believe that those policies that we
proposed for RY 2007 which would, if implemented, result in reductions
to the amounts paid by Medicare to LTCHs for RY 2007, were based on
materially flawed data that do not support the payment changes
presented in the proposed rule. They believe that we failed to comply
with the Federal Data Quality Act, and OMB, HHS and CMS Guidelines
which address the quality of the data used for policy development, in
particular, meeting standards of utility, objectivity, integrity, and
transparency and reproducibility. Because the commenters believe that
we have violated these data quality standards, they were deprived of
the opportunity to submit meaningful comments, as required by the
Administrative Procedures Act (APA), and they urge CMS to take the
appropriate steps that would result in the withdrawal of the FY 2007
LTCH PPS proposed rule and the publication of a new proposed rule. The
commenters also stated that a Freedom of Information Act (FOIA) request
for data included in the proposed rule was submitted but to date they
have not received a written response to their FOIA request.
Response: We disagree with the commenter's claims that the data
utilized in the development of the RY 2007 LTCH PPS proposed rule were
materially flawed, did not comply with the Federal Data Quality Act,
and did not meet established OMB, Department, and Agency guidelines for
data quality. As previously stated, the data sources used in estimating
the payment impacts from policy changes proposed in the RY 2007 LTCH
PPS proposed rule were the HCRIS files that contain Medicare cost
report data, the MedPAR files that contain Medicare claims data, the
OSCAR database and the PSF (which is maintained by the FIs and used in
paying Medicare claims). These are the best and most reliable data
sources available to CMS for modeling the impacts of policy changes. We
note that these same databases are used in modeling payment impacts
under the IPPS, the outpatient PPS, the IRF PPS and the IPF PPS, as
well as other Medicare payment systems. In addition to our posting the
impact files from the LTCH PPS proposed rule on the CMS website, as
always, commenters had access to the same CMS data files that we
utilized through communication with our Office of Information Services
(OIS).
The fact that the data we used in the development of the RY 2007
LTCH PPS proposed rule were available and transparent to the public was
attested to by the detailed data analyses included with a significant
number of the public comments we received on the RY 2007 LTCH PPS
proposed rule. Therefore, for the reasons stated above, we disagree
with the commenters' assertions that the data used by CMS in the RY
2007 LTCH PPS proposed rule does not meet transparency and
reproducibility standards. As is the case with any change in policy,
modifications to current policy are not based on erroneous assumptions,
but rather analyses of applicable data and comments submitted in
response to the proposed rule. Staffing constraints precluded our
Freedom of Information Group from expeditiously processing the FOIA
request. However, we again note that the data requested via the FOIA
process was available to the public through our OIS department. The
fact that the data were readily available to the public is evidenced by
the inclusion of the results of the publics' analysis of our data in
many of the comments we received on the RY 2007 LTCH PPS proposed rule.
Comment: A number of commenters noted that Medicare spending on
LTCHs is about 1.4 percent of total Medicare spending, and stated that
the CMS policies for RY 2007, that would result in over an 11 percent
cut in Medicare spending on LTCHs, would have a disproportionate impact
on LTCHs.
Response: It is widely understood that since there are over 3,500
acute care hospitals nationwide and just under 400 LTCHs, that a
significant majority of Medicare patients requiring long-stay hospital-
level care are being treated in short-term acute-care hospitals
throughout the country. Furthermore, notice has been taken that where
for FY 2006, the standard Federal payment under the IPPS (for operating
and capital costs) is about $5,200, while for RY 2006, it is about
$38,086 under the LTCH PPS. Therefore, in response to the comment about
the particular financial impact on LTCHs among Medicare providers of
our proposed policies, we would note that although presently LTCHs
serve only a relatively small percentage of Medicare beneficiaries, the
costs per beneficiary are the highest among Medicare provider types.
Furthermore, as noted in MedPAC's March 2006 Report to the
Congress, the growth in Medicare spending for LTCHs in 2004 alone was
close to 38 percent. From 2001 through 2004, the number of Medicare
beneficiaries using LTCHs rose 13 percent per year, the supply of LTCHs
increased 9 percent per year, the volume of services increased 12
percent annually, while Medicare spending on LTCHs rose 25 percent per
year. As discussed in section VI.C.3. of the preamble to this final
rule, based on our case-mix and margins analyses, we believe that a
zero percent update to the Federal rate is appropriate to account for
changes in coding practices that are not attributable to an increase in
LTCH patient severity. In addition, the zero percent update to the
Federal rate for RY 2007 is consistent with MedPAC's recommendation.
Additionally, while we are modifying the proposed SSO policy
changes presented in the proposed rule (as discussed in section
VI.A.1.a. of the preamble of this final rule), it is still incumbent
upon us, in light of the unintended financial incentive that may exist
under the current SSO policy for LTCHs to admit very short stay cases
that could otherwise receive appropriate treatment at an acute-care
hospital and be paid under the IPPS, to revisit and refine payments for
short-stay patients at LTCHs. We also wish to emphasize that our
policies are not dictated by budgetary limitations; rather they are
based on making appropriate payments to services provided to Medicare
patients.

B. Anticipated Effects of Payment Rate Changes

We discuss the impact of the changes to the payment rates, factors,
and policies presented in this final rule in terms of their fiscal
impact on the Medicare budget and on LTCHs.
1. Budgetary Impact
Section 123(a)(1) of the BBRA requires that the PPS developed for
LTCHs ``maintain budget neutrality.'' As discussed above in this
section, we believe that the statute's mandate for budget neutrality
applies only to the first year of the implementation of the LTCH PPS
(that is, FY 2003). Therefore, in calculating the FY 2003 standard
Federal rate under Sec. 412.523(d)(2), we set total estimated payments
for FY 2003 under the LTCH PPS so that aggregate payments under the
LTCH PPS are estimated to equal the amount that would have been paid if
the LTCH PPS had not been implemented. However, as discussed in greater
detail in the August 30, 2002 final rule (67 FR 56033 through 56036),
the FY 2003 LTCH PPS standard Federal rate ($34,956.15) was calculated
based on all LTCHs being paid 100 percent of the standard Federal rate
in FY 2003. As discussed in section V.D.5. of the preamble to this
final rule, we will

[[Page 27891]]

apply a budget neutrality offset to payments to account for the
monetary effect of the 5-year transition period and the policy to
permit LTCHs to elect to be paid based on 100 percent of the standard
Federal rate rather than a blend of Federal prospective payments and
reasonable cost-based payments during the transition. The amount of the
offset is equal to 1 minus the ratio of the estimated payments based on
100 percent of the LTCH PPS Federal rate to the projected total
Medicare program payments that will be made under the transition
methodology and the option to elect payment based on 100 percent of the
Federal prospective payment rate.
2. Impact on Providers
The basic methodology for determining a LTCH PPS payment is set
forth in Sec. 412.515 through Sec. 412.525. In addition to the basic
LTC-DRG payment (standard Federal rate multiplied by the LTC-DRG
relative weight), we make adjustments for differences in area wage
levels, COLA for Alaska and Hawaii, and SSOs. Furthermore, LTCHs may
also receive HCO payments for those cases that qualify based on the
threshold established each rate year. Section 412.533 provides for a 5-
year transition to payments based on 100 percent of the Federal
prospective payment rate. During the 5-year transition period, payments
to LTCHs are based on an increasing percentage of the LTCH PPS Federal
rate and a decreasing percentage of payment based on reasonable cost-
based methodology. Section 412.533(c) provides for a one-time
opportunity for LTCHs to elect payments based on 100 percent of the
LTCH PPS Federal rate.
To understand the impact of these changes to the LTCH PPS discussed
in this final rule on different categories of LTCHs for the 2007 LTCH
PPS rate year, it is necessary to estimate payments per discharge under
the LTCH PPS rates, factors and policies established for the RY 2006
LTCH PPS final rule and to estimate payments per discharge that will be
made under the LTCH PPS rates, factors and policies for the 2007 LTCH
PPS rate year (as discussed in the preamble of this final rule). We
also evaluated the percent change in payments per discharge of
estimated 2006 LTCH PPS rate year payments to estimated 2007 LTCH PPS
rate year payments for each category of LTCHs.
Hospital groups were based on characteristics provided in the OSCAR
data, FY 2001 through FY 2003 cost report data in HCRIS, and PSF data.
Hospitals with incomplete characteristics were grouped into the
``unknown'' category. Hospital groups include:
Location: Large Urban/Other Urban/Rural.
Participation date.
Ownership control.
Census region.
Bed size.
To estimate the impacts among the various categories of existing
providers (that is, those that are not defined as ``new'' as under
Sec. 412.23(e)(4)) during the LTCH PPS transition period, it is
necessary that reasonable cost-based methodology payments and
prospective payments contain similar inputs. As discussed in section IX
of the preamble of this final rule, under Sec. 412.533(d), ``new''
LTCHs will not participate in the 5-year transition from reasonable
cost-based reimbursement to prospective payment, and therefore, no
portion of their LTCH PPS payments are based on reasonable cost-based
principles. In the impact analysis showing the impact reflecting the
applicable transition blend percentages of prospective payments and
reasonable cost-based methodology payments and the option to elect
payment based on 100 percent of the Federal rate (see Table 17), for
existing LTCHs, we estimated payments only for those providers for whom
we are able to calculate payments based on reasonable cost-based
methodology. For example, if we did not have at least 2 years of
historical cost data for a LTCH, we were unable to determine an update
to the LTCH's target amount to estimate payment under reasonable cost-
based methodology. However, we were able to estimate payments for all
new LTCHs since no portion of their estimated LTCH PPS payments are
based on the reasonable cost methodology. As a result, only case-mix
data is necessary to calculate their LTCH PPS payments.
Using LTCH cases from the FY 2005 MedPAR file and cost data from FY
1999 through FY 2003 to estimate payments under the current reasonable
cost-based principles, we have obtained both case-mix and cost data (if
required) for 347 LTCHs. Thus, for the impact analyses reflecting the
applicable transition blend percentages of prospective payments and
reasonable cost-based methodology payments and the option to elect
payment based on 100 percent of the Federal rate (see Table 16), we
used data from 347 LTCHs. While currently there are just under 400
LTCHs, the most recent growth is predominantly in for-profit LTCHs that
provide respiratory and ventilator-dependent patient care. We believe
that the discharges from the FY 2005 MedPAR data for the 347 LTCHs in
our database, which includes 232 proprietary LTCHs, provide sufficient
representation in the LTC-DRGs containing discharges for patients who
received respiratory and ventilator-dependent care based on the
relatively large number of LTCH cases in LTC-DRGs for these diagnoses.
However, using cases from the FY 2005 MedPAR file we had case-mix data
for 363 LTCHs. Cost data to determine current payments under reasonable
cost-based methodology payments are not needed to simulate payments
based on 100 percent of the Federal rate. Therefore, for the impact
analyses reflecting fully phased-in prospective payments (see Table 17)
we used data from 363 LTCHs.
These impacts reflect the estimated ``losses'' or ``gains'' among
the various classifications of LTCHs for the 2006 LTCH PPS rate year
(July 1, 2005 through June 30, 2006) compared to the 2007 LTCH PPS rate
year (July 1, 2006 through June 30, 2007). Prospective payments for the
2006 LTCH rate year were based on the standard Federal rate of
$38,086.04, the outlier fixed-loss amount of $10,501, and the
hospitals' estimated case-mix based on FY 2005 LTCH claims data.
Estimated prospective payments for the 2007 LTCH PPS rate year will be
based on the standard Federal rate of $38,086.04 (based on the zero
percent update discussed in section V.C.3. of the preamble to this
final rule), the outlier fixed-loss amount of $14,887, and the same FY
2005 LTCH claims data.
3. Calculation of Prospective Payments
To estimate payments under the LTCH PPS, we simulated payments on a
case-by-case basis by applying the payment policy for SSOs (as
described in section VI.A.1. of the preamble of this final rule), the
adjustments for area wage differences (as described in section V.D.1.
of the preamble of this final rule), and for the cost-of-living for
Alaska and Hawaii (as described in section V.D.2. of the preamble of
this final rule). Additional payments will also be made for HCOs (as
described in section V.D.3. of this final rule). As noted in section
V.D.4. of this final rule, we are not making adjustments for rural
location, geographic reclassification, indirect medical education
costs, or a DSH payment for the treatment of low-income patients
because sufficient new data have not been generated that would enable
us to conduct a comprehensive reevaluation of these payment
adjustments. We adjusted for area wage differences for estimated 2006
LTCH PPS rate year payments by computing a weighted average of a LTCH's
applicable wage index during the period from July 1, 2005 through June
30, 2006 because some providers may experience a change in the wage
index phase-in

[[Page 27892]]

percentage during that period. For cost reporting periods beginning on
or after October 1, 2004 and before September 30, 2005 (FY 2005), the
labor portion of the Federal rate was adjusted by three-fifths of the
applicable LTCH PPS wage index. For cost reporting periods beginning on
or after October 1, 2005 and before September 30, 2006 (FY 2006), the
labor portion of the Federal rate is adjusted by four-fifths of the
applicable LTCH PPS wage index. Therefore, during RY 2006, a provider
with a cost reporting period that began October 1, 2005 would have 3
months of payments under the three-fifths wage index value and 9 months
of payments under the four-fifths wage index value. For this provider,
we computed a blended wage index of 25 percent (3 months/12 months) of
the three-fifths wage index value and 75 percent (9 months/12 months)
of the four-fifths wage index value. The applicable LTCH PPS wage index
values for the 2006 LTCH PPS rate year are shown in Tables 1 and 2 of
the Addendum to the RY 2006 LTCH PPS final rule (70 FR 24224 through
24247). We adjusted for area wage differences for estimated 2006 LTCH
PPS rate year payments using the current LTCH PPS labor-related share
of 72.885 percent (70 FR 24182).
Similarly, we adjusted for area wage differences for estimated 2007
LTCH PPS rate year payments by computing a weighted average of a LTCH's
applicable wage index during the period from July 1, 2006 through June
30, 2007 because some providers may experience a change in the wage
index phase-in percentage during that period. For cost reporting
periods that began on or after October 1, 2005 and on or before
September 30, 2006 (FY 2006), the labor portion of the Federal rate is
adjusted by four-fifths of the applicable LTCH PPS wage index. For cost
reporting periods beginning on or after October 1, 2006, the labor
portion of the Federal rate is adjusted by the full (five-fifths)
applicable LTCH PPS wage index. The applicable LTCH PPS wage index
values for the 2007 LTCH PPS rate year are shown in Tables 1 and 2 of
the Addendum to this final rule. We adjusted for area wage differences
for estimated 2007 LTCH PPS rate year payments using the LTCH PPS
labor-related share of 75.665 percent (see section V.D.1.c. of this
final rule).
For those providers projected to receive payment under the
transition blend methodology, we also calculated payments using the
applicable transition blend percentages. During the 2006 LTCH PPS rate
year, based on the transition blend percentages set forth in Sec.
412.533(a), some providers may experience a change in the transition
blend percentage during the period from July 1, 2005 through June 30,
2006. For example, during the period from July 1, 2005 through June 30,
2006, a provider with a cost reporting period beginning on October 1,
2004 (which is paid under the 40/60 transition blend (40 percent of
payments based on reasonable cost-based methodology and 60 percent of
payments under the Federal rate)) had 3 months (July 1, 2005 through
September 30, 2005) under the 40/60 blend and 9 months (October 1, 2005
through June 30, 2006) of payment under the 20/80-transition blend (20
percent of payments based on reasonable cost-based methodology and 80
percent of payments under the Federal rate). The 20/80 transition blend
will continue until the provider's cost reporting period beginning on
October 1, 2006 (FY 2007).
Similarly, during the 2007 LTCH PPS rate year, based on the
transition blend percentages set forth in Sec. 412.533(a), some of the
providers that will be paid under the transition blend methodology may
experience a change in the transition blend percentage during the
period from July 1, 2006 through June 30, 2007. For example, during the
period from July 1, 2006 through June 30, 2007, a provider with a cost
reporting period beginning on October 1, 2005 (which is paid under the
20/80 transition blend) will have 3 months (July 1, 2006 through
September 30, 2006) under the 20/80 blend and 9 months (October 1, 2006
through June 30, 2007) of payment based on 100 percent of Federal rate
payments under the LTCH PPS (and zero percent based on reasonable cost-
based methodology). The provider will continue to receive payments
based on 100 percent of the LTCH PPS Federal rate for its cost
reporting period beginning on October 1, 2006 (FY 2007) and for its
subsequent cost reporting periods.
In estimating blended transition payments, we estimated payments
based on the reasonable cost-based methodology, in accordance with the
requirements at section 1886(b) of the Act. For those providers who
have not already made the election (as determined from PSF data) to be
paid based on 100 percent of the Federal rate, we compared the
estimated blended transition payment to the LTCH's estimated payment if
it would elect payment based on 100 percent of the Federal rate. If we
estimated that the LTCH would be paid more based on 100 percent of the
Federal rate, we assumed that it would elect to bypass the transition
methodology and would receive payments based on 100 percent of the
Federal rate.
We applied the applicable budget neutrality offset to payments to
account for the effect of the 5-year transition methodology and
election of payment based on 100 percent of the Federal rate on
Medicare program payments (established in the August 30, 2002 final
rule (67 FR 56034)). In estimating both RY 2006 and RY 2007 LTCH PPS
payments, we applied the 0.0 percent (a budget neutrality factor of
1.0) budget neutrality offset to payments to account for the effect of
the 5-year transition methodology and election of payment based on 100
percent of the Federal rate on Medicare program payments to each LTCH's
estimated payments under the LTCH PPS for the 2006 and 2007 LTCH PPS
rate years. (See the RY 2006 LTCH PPS final rule (70 FR 24202) and
section IV.D.5. of this final rule.) The impact, based on our
projection using the best available data for 347 LTCHs that
approximately 2 percent of LTCHs will be paid based on the transition
blend methodology and 98 percent of LTCHs will elect payment based on
100 percent of the Federal rate is shown in Table 16.
In Table 17, we also show the impact if all LTCHs would be paid 100
percent of the Federal rate; that is, as if there were a mandatory
immediate transition to fully Federal prospective payments under the
LTCH PPS for the 2006 LTCH PPS rate year and the 2007 LTCH PPS rate
year. In the impact analysis shown in Table 17, the respective budget
neutrality adjustments to account for the 5-year transition methodology
on LTCHs' Medicare program payments for the 2006 and 2007 LTCH PPS rate
years (0.0 percent in both RY 2006 and RY 2007) were not applied to
LTCHs' estimated payments under the LTCH PPS.
Tables 16 and 17 illustrate the estimated aggregate impact of the
payment system among various classifications of LTCHs.
The first column, LTCH Classification, identifies the type
of LTCH.
The second column lists the number of LTCHs of each
classification type.
The third column identifies the number of long-term care
cases.
The fourth column shows the estimated payment per
discharge for the 2006 LTCH PPS rate year.
The fifth column shows the estimated payment per discharge
for the 2007 LTCH PPS rate year.
The sixth column shows the estimated percent change in
estimated payments per discharge from the 2006 LTCH PPS rate year to
the 2007 LTCH

[[Page 27893]]

PPS rate year for changes to the area wage adjustment at Sec.
412.525(c) (as discussed in section V.D.1. of the preamble of this
final rule).
The seventh column shows the estimated percent decrease in
estimated payments per discharge from the 2006 LTCH PPS rate year to
the 2007 LTCH PPS rate year for changes to the SSO policy at Sec.
412.529 (as discussed in section VI.A.1.a. of the preamble of this
final rule).
The eighth column shows the percent decrease in estimated
payments per discharge from the 2006 LTCH PPS rate year to the 2007
LTCH PPS rate year for all changes (as discussed in the preamble of
this rule).

Table 16.--Projected Impact Reflecting Applicable Transition Blend Percentages of Prospective Payments and Reasonable Cost-Based (TEFRA) Payments and
Option To Elect Payment Based on 100 Percent of the Federal Rate \1\
[Estimated 2006 LTCH PPS rate year payments compared to estimated 2007 LTCH PPS rate year payments] \2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent
decrease \5\ Percent Percent
in payments decrease \5\ decrease \5\
Average RY Average RY per discharge in payments in payments
LTCH classification Number of Number of LTCH 2006 LTCH PPS 2007 LTCH PPS from RY 2006 per discharge per discharge
LTCHs cases payment per payment per to RY 2007 for from RY 2006 from RY 2006
case \3\ case \4\ area wage to RY 2007 for to RY 2007 for
adjustment changes to the all changes
changes \6\ SSO policy \7\ \8\
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Providers........................... 347 125,095 $33,208 $31,963 0.6 3.6 3.7
By Location:
Rural............................... 22 4,549 27,014 25,445 2.9 3.1 5.8
Urban............................... 325 120,546 33,442 32,209 0.5 3.6 3.7
Large............................... 173 74,841 34,281 33,225 -0.1 3.5 3.1
Other............................... 152 45,705 32,068 30,544 1.5 3.6 4.8
By Participation Date:
Before Oct. 1983.................... 14 7,733 28,212 27,402 -0.5 3.8 2.9
Oct. 1983-Sept. 1993................ 44 22,598 34,793 33,698 -0.1 3.6 3.1
Oct. 1993-Sept. 2002................ 200 72,061 33,036 31,756 0.7 3.5 3.9
After Oct. 2002..................... 89 22,703 33,879 32,447 1.0 3.6 4.2
By Ownership Control:
Voluntary........................... 69 24,463 32,377 30,974 0.6 4.1 4.3
Proprietary......................... 232 91,066 33,308 32,119 0.5 3.4 3.6
Government.......................... 10 2,368 30,055 28,664 1.3 3.5 4.6
Unknown............................. 36 7,198 35,814 34,431 0.9 3.4 3.9
By Census Region:
New England......................... 13 9,641 28,013 27,218 -0.8 4.1 2.8
Middle Atlantic..................... 17 5,644 33,731 32,491 0.7 3.3 3.7
South Atlantic...................... 24 8,766 37,107 35,776 0.6 3.5 3.6
East North Central.................. 50 15,550 37,175 35,848 0.5 3.5 3.6
East South Central.................. 15 4,934 33,723 32,127 1.5 3.6 4.7
West North Central.................. 17 5,046 36,558 35,084 1.0 3.5 4.0
West South Central.................. 90 40,177 29,601 28,278 1.2 3.6 4.5
Mountain............................ 19 5,796 34,771 33,762 -0.5 3.8 2.9
Pacific............................. 13 6,838 40,880 40,592 -1.9 3.1 0.7
By Bed Size:
Beds: 0-24.......................... 26 4,219 33,049 31,389 1.7 3.6 5.0
Beds: 25-49......................... 164 41,796 33,546 32,081 1.1 3.6 4.4
Beds: 50-74......................... 56 21,825 33,307 32,056 0.6 3.6 3.8
Beds: 75-124........................ 40 20,064 34,428 33,399 0.0 3.4 3.0
Beds: 125-199....................... 24 22,264 31,069 29,949 0.4 3.6 3.6
Beds: 200+.......................... 11 10,551 33,043 32,265 -0.8 3.6 2.4
Unknown............................. 26 4,376 35,336 33,861 1.2 3.4 4.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ As discussed above, this impact analysis reflects the applicable transition methodology (i.e., the applicable blend percentages of the Federal rate
and reasonable cost-based methodology payments or the option to elect payment based on 100 percent of the Federal rate) for existing LTCHs, and
therefore, only includes those existing LTCHs (347) that have cases in the FY 2005 MedPAR files for whom we are able to calculate payments based on
the reasonable cost-based methodology.
\2\ These calculations take into account that some providers may experience a change in the LTCH PPS blend percentage changes during the 2006 and 2007
LTCH PPS rate years. For example, during the period of July 1, 2006 through June 30, 2007, a provider with a cost reporting period beginning October
1, 2005 will have 3 months (July 1, 2006 through September 30, 2006) of payments under the 20/80 blend (\4/5\ wage index) and 9 months (October 1,
2006 through June 30, 2007) of payment under the full \5/5\ wage index).
\3\ Estimated average payment per case for the 12-month period of July 1, 2005 through June 30, 2006.
\4\ Estimated average payment per case for the 12-month period of July 1, 2006 through June 30, 2007.
\5\ As the percent change shown in this column represents an estimated percent decrease in payments per discharge, a negative (i.e., minus) sign
indicates an estimated percent increase in payments per discharge and the absence of a sign (i.e., a positive sign) indicates an estimated percent
decrease in payments per discharge.
\6\ Percent change in estimated payments per discharge from the 2006 LTCH PPS rate year to the 2007 LTCH PPS rate year for the changes to the area wage
adjustment policy at Sec. 412.525(c) (as discussed in section V.D.1. of the preamble of this final rule).
\7\ Percent decrease in estimated payments per discharge from the 2006 LTCH PPS rate year to the 2007 LTCH PPS rate year for the changes to the SSO
policy at Sec. 412.529 (as discussed in section VI.A.1.a. of the preamble of this final rule).

[[Page 27894]]

\8\ Percent decrease in estimated payments per discharge from the 2006 LTCH PPS rate year (as established in the RY 2006 LTCH PPS final rule (70 FR
24168 through 24261)) to those for the 2007 LTCH PPS rate year (as discussed in the preamble of this final rule). Note, this column, which shows the
estimated percent decrease in payments per discharge for all changes, may not exactly equal the sum of the estimated percent decrease in payments per
discharge for area wage adjustment changes (column 6) and for SSO policy changes (column 7) due to the effect of estimated changes in aggregate high
cost outlier payments as well as other interactive effects that cannot be isolated.

Table 17.--Projected Impact Reflecting the Fully Phased-In LTCH PPS Prospective Payments \1\
[Estimated 2006 LTCH PPS rate year payments compared to estimated 2007 LTCH PPS rate year payments] \2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent
decrease \5\ Percent Percent
in payments decrease \5\ decrease \5\
Average RY Average RY per discharge in payments in payments
LTCH classification Number of Number of LTCH 2006 LTCH PPS 2007 LTCH PPS from RY 2006 per discharge per discharge
LTCHs cases payment per payment per to RY 2007 for from RY 2006 from RY 2006
case \3\ case \4\ area wage to RY 2007 for to RY 2007 for
adjustment changes to the all changes
changes \6\ SSO policy \7\ \8\
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Providers........................... 363 128,989 $33,212 $31,983 -0.6 3.6 3.7
By Location:
Rural............................... 24 5,009 26,832 25,281 -3.1 3.0 5.8
Urban............................... 339 123,980 33,470 32,253 -0.5 3.6 3.6
Large............................... 180 77,385 34,355 33,314 0.1 3.5 3.0
Other............................... 159 46,595 32,000 30,493 -1.5 3.6 4.7
By Participation Date:
Before Oct. 1983.................... 15 7,925 28,051 27,274 0.5 3.7 2.8
Oct. 1983-Sept. 1993................ 44 22,598 34,771 33,692 0.1 3.7 3.1
Oct. 1993-Sept. 2002................ 208 75,331 33,106 31,844 -0.7 3.5 3.8
After Oct. 2002..................... 89 22,703 33,879 32,447 -1.0 3.6 4.2
Unknown............................. 7 432 29,681 28,836 0.1 3.4 2.8
By Ownership Control:
Voluntary........................... 71 25,789 32,398 31,025 -0.6 4.1 4.2
Proprietary......................... 238 92,562 33,262 32,083 -0.5 3.4 3.5
Government.......................... 10 2,368 30,032 28,667 -1.3 3.5 4.5
Unknown............................. 44 8,270 36,104 34,797 -0.7 3.3 3.6
By Census Region:
New England......................... 14 9,83 27,888 27,122 0.8 4.0 2.7
Middle Atlantic..................... 28 7,667 34,813 33,626 -0.5 3.3 3.4
South Atlantic...................... 42 13,594 37,084 35,72 -0.6 3.5 3.7
East North Central.................. 65 18,514 37,421 36,030 -0.6 3.6 3.7
East South Central.................. 28 7,490 33,442 31,784 -1.7 3.7 5.0
West North Central.................. 18 5,125 36,543 35,057 -1.0 3.6 4.1
West South Central.................. 130 52,411 29,679 28,372 -1.2 3.5 4.4
Mountain............................ 22 6,341 35,121 34,060 0.4 3.9 3.0
Pacific............................. 16 8,014 41,173 40,871 1.8 3.1 0.7
By Bed Size:
Beds: 0-24.......................... 29 4,751 32,650 31,0102 -1.6 3.5 4.7
Beds: 25-49......................... 168 43,400 33,628 2,181 -1.1 3.6 4.3
Beds: 50-74......................... 56 21,825 33,307 32,069 -0.6 3.6 3.7
Beds: 75-124........................ 40 20,064 34,425 33,412 0.0 3.4 2.9
Beds: 125-199....................... 25 23,398 31,266 30,14 -0.3 3.6 3.6
Beds: 200 +......................... 12 10,743 32,838 32,086 0.8 3.6 2.3
Unknown............................. 33 4,808 34,828 33,409 -1.1 3.4 4.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ As discussed above, this impact analyses reflects fully phased-in prospective payments, and therefore, cost data to determine current payments under
reasonable cost-based methodology payments are not needed. Therefore, we are able to use all of the LTCHs (363) that have cases in the FY 2005 MedPAR
files.
\2\ These calculations take into account that some providers may experience a change in the LTCH PPS blend percentage changes during the 2006 and 2007
LTCH PPS rate years. For example, during the period of July 1, 2006 through June 30, 2007, a provider with a cost reporting period beginning October
1, 2005 will have 3 months (July 1, 2006 through September 30, 2006) of payments under the 20/80 blend (\4/5\ wage index) and 9 months (October 1,
2006 through June 30, 2007) of payment under the full (\5/5\) wage index.
\3\ Estimated average payment per case for the 12-month period of July 1, 2005 through June 30, 2006.
\4\ Estimated average payment per case for the 12-month period of July 1, 2006 through June 30, 2007.
\5\ As the percent change shown in this column represents an estimated percent decrease in payments per discharge, a negative (i.e., minus) sign
indicates an estimated percent increase in payments per discharge and the absence of a sign (i.e., a positive sign) indicates an estimated percent
decrease in payments per discharge.
\6\ Percent change in estimated payments per discharge from the 2006 LTCH PPS rate year to the 2007 LTCH PPS rate year for the changes to the area wage
adjustment policy at Sec. 412.525(c) (as discussed in section V.D.1. of the preamble of this final rule).
\7\ Percent decrease in estimated payments per discharge from the 2006 LTCH PPS rate year to the 2007 LTCH PPS rate year for the changes to the SSO
policy at Sec. 412.529 (as discussed in section VI.A.1.a. of the preamble of this final rule).
\8\ Percent decrease in estimated payments per discharge from the 2006 LTCH PPS rate year (as established in the RY 2006 LTCH PPS final rule (70 FR
24168 through 24261)) to those for the 2007 LTCH PPS rate year (as discussed in the preamble of this final rule). Note, this column, which shows the
estimated percent decrease in payments per discharge for all changes, may not exactly equal the sum of the estimated percent decrease in payments per
discharge for area wage adjustment changes (column 6) and for SSO policy changes (column 7) due to the effect of estimated changes in aggregate high
cost outlier payments as well as other interactive effects that cannot be isolated.

[[Page 27895]]

4. Results
Based on the most recent available data (as described previously
for 347 LTCHs), we have prepared the following summary of the impact
(as shown above in Table 16) of the LTCH PPS set forth in this final
rule. The impact analysis in Table 16 shows that estimated payments per
discharge are expected to decrease approximately 3.7 percent on average
for all LTCHs from the 2006 LTCH PPS rate year as compared to the 2007
LTCH PPS rate year as a result of the changes presented in this final
rule. As noted previously, the estimated percent decrease in payments
per discharge from the 2006 LTCH PPS rate year to the 2007 LTCH PPS
rate year is largely attributable to the change in the payment formula
for SSO cases (discussed in section VI.A.1.a. of this final rule).
Specifically, under the changes to the SSO policy for RY 2007, the vast
majority of LTCH SSO cases (which is approximately 37 percent of all
LTCH cases) will receive a lower payment than under the current SSO
policy. We believe the revisions we are establishing to the SSO policy
in this final rule are appropriate, as discussed in greater detail in
section VI.A.1.a. of the preamble of this final rule, given that many
of these very short-stay cases most likely do not receive a full course
of a LTCH-level of treatment in such a short period of time since, in
general, LTCHs are intended to treat patients with an ALOS of greater
than 25 days. Furthermore, since most SSO cases which were admitted to
the LTCH directly from an acute-care hospital, they may still be in
need of acute-level care at the time of admission to the LTCH, which
may indicate a premature and inappropriate discharge from the acute-
care hospital and inappropriate admissions to the LTCH. Therefore, we
believe that the changes to the SSO policy will result in more
appropriate payments for short-stay cases treated at LTCHs.
As we discussed in greater detail in section V.D.3.c. of the
preamble of this final rule, given the regulatory requirement at Sec.
412.525(a) estimated outlier payments equal to 8 percent of estimated
total LTCH PPS payments, this estimated decrease in LTCH PPS payments
for RY 2007 resulting from the changes to the SSO policy requires an
increase in the HCO fixed-loss amount in order to maintain estimated
outlier payments at 8 percent of the reduced estimated total LTCH PPS
payments (resulting from the changes to the SSO policy and other policy
changes presented in this final rule). Thus, the increase in the
outlier fixed-loss amount also contributes to the decrease in payments
per discharge from the 2006 LTCH PPS rate year to the 2007 LTCH PPS
rate year. For example, many LTCHs are expected to receive a decrease
in HCO payments. As a result of the increase to the fixed-loss amount
from the 2006 LTCH PPS rate year ($10,501) to the 2007 LTCH PPS rate
year ($14,887), fewer cases will qualify as outlier cases (that is, the
estimated cost of the case exceeds the outlier threshold). Since many
LTCHs are expected to receive fewer outlier payments, total estimated
payments per discharge are expected to decrease (as discussed in
section V.D.3. of this final rule).
As we discussed in greater detail in section V.D.1. of the preamble
of this final rule, we are updating the wage index values for RY 2007
and continuing with the progression of the 5-year phase-in of the wage
index adjustment. In addition, we are increasing the labor-related
share from 72.885 percent to 75.665 percent under the LTCH PPS
beginning in RY 2007. LTCHs located in areas with a RY 2007 wage index
value that is greater than 1.0 will experience an increase in payments
per discharge as a result of the increase in the labor-related share
and the progression of the 5-year phase-in of the wage index
adjustment. Thus, the changes to the wage index adjustment established
in this final rule for LTCHs located in areas with a RY 2007 wage index
value that is greater than 1.0 are expected to mitigate some of the
projected decrease in payments per discharge that will result from the
changes to the SSO policy and the outlier threshold. Similarly, LTCHs
located in areas with a RY 2007 wage index value that is less than 1.0
are expected to experience a decrease in payments per discharge as a
result of the increase in the labor-related share and the progression
of the 5-year phase-in of the wage index adjustment. Consequently, the
changes to the wage index adjustment established in this final rule for
LTCHs located in areas with a RY 2007 wage index value that is less
than 1.0 are expected to also contribute to the projected decrease in
payments per discharge from RY 2006 as compared to RY 2007.
a. Location
Based on the most recent available data, the majority of LTCHs are
in urban areas. Approximately 6 percent of the LTCHs are identified as
being located in a rural area, and approximately 3.6 percent of all
LTCH cases are treated in these rural hospitals. The impact analysis in
Table 16 shows that the percent decrease in estimated payments per
discharge for the 2006 LTCH PPS rate year compared to the 2007 LTCH PPS
rate year for rural LTCHs will be 5.8 percent, and will be 3.7 percent
for urban LTCHs. While rural LTCHs are expected to experience a smaller
decrease in payments due to the changes in the SSO policy because they
treat a smaller percentage of SSO cases, they are projected to
experience a higher decrease in payments per discharge as a result of
the changes to the area wage adjustment (discussed in section V.D.1. of
the preamble of this final rule). Specifically, rural LTCHs are
expected to experience a higher decrease in payments per discharge as a
result of the changes to the area wage adjustment. The wage index for
all rural LTCHs is less than 1.0, and therefore, they are expected to
experience a decrease in payments per discharge as a result of the
increase in the labor-related share and the progression of the 5-year
phase-in of the wage index adjustment.
Large urban LTCHs are projected to experience a 3.1 percent
decrease in payments per discharge from the 2006 LTCH PPS rate year
compared to the 2007 LTCH PPS rate year, while other urban LTCHs are
projected to experience a 4.8 percent decrease in payments per
discharge from the 2006 LTCH PPS rate year compared to the 2007 LTCH
PPS rate year (see Table 16). Other urban LTCHs are projected to
experience a higher than average decrease in payments per discharge
primarily because of the changes to the area wage adjustment (discussed
in section V.D.1. of the preamble of this final rule). Specifically,
the majority of other urban LTCHs (over 80 percent) are located in
urban areas that have a wage index value of less than 1.0, and
therefore, are expected to experience a higher than average decrease in
payments per discharge as a result of the increase in the labor-related
share and the progression of the 5-year phase-in of the wage index
adjustment. In addition, other urban LTCHs have a slightly higher
percentage of SSO cases and therefore, are projected to experience a
slightly higher than average decrease in payments per discharge as a
result of the changes to the SSO policy (as discussed in greater detail
above in this section).
b. Participation Date
LTCHs are grouped by participation date into four categories: (1)
Before October 1983; (2) between October 1983 and September 1993; (3)
between October 1993 and September 2002; and (4) after October 2002.
Based on the most recent available data, the majority (approximately 58
percent) of the LTCH

[[Page 27896]]

cases are in hospitals that began participating between October 1993
and September 2002, and are projected to experience a 3.9 percent
decrease in payments per discharge from the 2006 LTCH PPS rate year
compared to the 2007 LTCH PPS rate year. Approximately 18 percent of
LTCH PPS cases are in LTCHs that began participating in Medicare
between October 1983 and September 1993, and those LTCHs are projected
to experience a 3.1 percent decrease in payments per discharge from the
2006 LTCH PPS rate year compared to the 2007 LTCH PPS rate year (see
Table 16). We are projecting that LTCHs that began participating in
Medicare between October 1983 and September 1993 will experience a
lower than average decrease in payments for RY 2007 primarily because
we are projecting that these LTCHs are expected to experience a slight
increase (0.1 percent) in payments per discharge due to the changes to
the area wage adjustment. Specifically, many of the LTCHs that began
participating in Medicare between October 1983 and September 1993 are
located in areas where the RY 2007 wage index value will be greater
than the RY 2006 wage index value. In addition, several of these LTCHs
are located in areas that have a wage index value of greater than 1.0,
and therefore, are expected to experience a slight increase in payments
per discharge as a result of the increase in the labor-related share
and the progression of the 5-year phase-in of the wage index
adjustment.
LTCHs that began participating before October 1983 are projected to
experience a 2.9 percent decrease in payments per discharge from the
2006 LTCH PPS rate year compared to the 2007 LTCH PPS rate year (see
Table 16). We are projecting that LTCHs that began participating in
Medicare before October 1983 will experience a smaller than average
decrease in payments for RY 2007 as compared to RY 2006 primarily
because we are projecting that LTCHs in this participation date
category will experience a slight increase in payments in RY 2007 as
compared to RY 2006 due to the changes to the area wage adjustment
(discussed in section V.D.1. of the preamble of this final rule).
Specifically, the majority of LTCHs that began participating in
Medicare before October 1983 are located in areas where the RY 2007
wage index value will be greater than the RY 2006 wage index value. In
addition, many of these LTCHs are located in areas that will have a
wage index value of greater than 1.0, and therefore, will experience a
slight increase in payments per discharge as a result of the increase
in the labor-related share and the progression of the 5-year phase-in
of the wage index adjustment. Approximately 18 percent of LTCH PPS
cases are in LTCHs that began participating in Medicare after October
2002 (that is, the implementation of the LTCH PPS), and those LTCHs are
projected to experience a 4.2 percent decrease in payments per
discharge from the 2006 LTCH PPS rate year compared to the 2007 LTCH
PPS rate year (see Table 16). We are projecting that LTCHs that began
participating in Medicare after October 2002 will experience a higher
than average decrease in payments for RY 2007 primarily because we are
projecting that these LTCHs will experience a larger decrease (-1.0
percent) in payments per discharge due to the changes to the area wage
adjustment. Specifically, the majority of the LTCHs that began
participating in Medicare after October 2002 are located in areas where
the RY 2007 wage index value will be less than the RY 2006 wage index
value. In addition, several of these LTCHs are located in areas that
will have a wage index value of less than 1.0, and therefore, are
expected to experience a decrease in payments per discharge as a result
of the increase in the labor-related share and the progression of the
5-year phase-in of the wage index adjustment.
c. Ownership Control
Other than LTCHs whose ownership control type is unknown, LTCHs are
grouped into three categories based on ownership control type:
voluntary; proprietary; and government.
Based on the most recent available data, approximately 2.9 percent
of LTCHs are identified as government-owned and operated. We expect
that for these government-owned and operated LTCHs, 2007 LTCH PPS rate
year payments per discharge will decrease 4.6 percent in comparison to
the 2006 LTCH PPS rate year (see Table 16). We are projecting that
government-run LTCHs will experience a higher than average decrease in
payment in RY 2007 as compared to RY 2006 primarily due to the effect
of the changes to the area wage adjustment (discussed in section V.D.1.
of the preamble of this proposed rule). Specifically, all but 2 of the
10 government-run LTCHs in our database are located in areas where the
wage index value for RY 2007 is less than 1.0, and therefore, are
expected to experience a higher than average decrease in payments per
discharge as a result of the increase in the labor-related share and
the progression of the 5-year phase-in of the wage index adjustment.
Similarly, we project that 2007 LTCH PPS rate year payments per
discharge for voluntary LTCHs will decrease 4.3 percent in comparison
to the 2006 LTCH PPS rate year payments (see Table 16). We are
projecting that voluntary LTCHs will experience a higher than average
decrease in payments in RY 2007 as compared to RY 2006 primarily due to
the changes to the SSO policy, since approximately two-thirds of the
voluntary LTCHs have a higher than average percentage of SSO cases.
The majority (approximately 67 percent) of LTCHs are identified as
proprietary. We project that 2007 LTCH PPS rate year payments per
discharge for these proprietary LTCHs will decrease 3.6 percent in
comparison to the 2006 LTCH PPS rate year (see Table 16). We are
projecting that proprietary LTCHs will experience a slightly lower than
average decrease in payments in RY 2007 as compared to RY 2006
primarily due to our estimate that these LTCHs will experience a
slightly lower than average decrease in payments due to the changes to
the SSO policy, since many proprietary LTCHs have a lower than average
percentage of SSO cases. Proprietary LTCHs are also expected to
experience a slightly lower than average decrease in payments from RY
2006 to RY 2007 due to the changes to the area wage adjustment since
several proprietary LTCHs are expected to experience an increase to
their wage index value from RY 2006 to RY 2007.
d. Census Region
Payments per discharge for the 2007 LTCH PPS rate year are
estimated to decrease for LTCHs located in all regions in comparison to
the 2006 LTCH PPS rate year. As explained in greater detail above in
this section, the estimated percent decrease in payments per discharge
from the 2006 LTCH PPS rate year to the 2007 LTCH PPS rate year is
largely attributable to the change in the payment formula for SSO
cases, the changes in the area wage adjustment, and the increase in the
outlier fixed-loss amount.
Of the 9 census regions, we project that the estimated decrease in
2007 LTCH PPS rate year payments per discharge in comparison to the
2006 LTCH PPS rate year will have the largest impact on LTCHs in the
East South Central and West South Central regions (4.7 percent and 4.5
percent, respectively; see Table 16). LTCHs located in both the East
and West South Central regions are expected to experience a higher than
average decrease in payments due to the changes in the area wage
adjustment (1.5 percent for the East South Central

[[Page 27897]]

region and 1.2 percent for the West South Central region). Since nearly
all LTCHs located in the East South Central region and the West South
Central region are located in areas with a wage index value that is
less than 1.0, they are expected to experience a decrease in payments
per discharge as a result of the increase in the labor-related share
and the progression of the 5-year phase-in of the wage index
adjustment.
We project that 2007 LTCH PPS rate year payments per discharge will
decrease the least for LTCHs in the Pacific region in comparison to the
2006 LTCH PPS rate year (0.7 percent; see Table 16). We estimate that
for LTCHs located in the Pacific region, the projected decrease in
payments per discharge for the 2007 LTCH PPS rate year compared to the
2006 LTCH PPS rate year is less than the decreases projected for other
regions, because we are projecting an increase in estimated LTCH PPS
payments from RY 2006 to RY 2007 as a result of the changes to the area
wage adjustment. Specifically, we are projecting an increase in
estimated LTCH PPS payments due to the changes to the area wage
adjustment because all LTCHs in this region are located in areas where
the RY 2007 wage index value is greater than the RY 2006 wage index
value. Furthermore, all of the LTCHs located in the Pacific region are
located in areas where the wage index value for RY 2007 is greater than
1.0, and therefore, are expected to experience an increase in payments
per discharge as a result of the increase in the labor-related share
and the progression of the 5-year phase-in of the wage index
adjustment. In addition, many of the Pacific LTCHs treat a lower than
average percentage of SSO cases, and therefore, we project that these
LTCHs will experience a lower than average decrease in average payments
as a result of the changes to the SSO policy.
e. Bed Size
LTCHs were grouped into seven categories based on bed size: 0-24
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; greater than
200 beds; and unknown bed size.
We are projecting a decrease in 2007 LTCH PPS rate year payments
per discharge in comparison to the 2006 LTCH PPS rate year for all bed
size categories. Most LTCHs are in bed size categories where 2007 LTCH
PPS rate year payments per discharge are projected to decrease by at
least 3.5 percent in comparison to the 2006 LTCH PPS rate year. As
discussed in greater detail above in this section, the estimated
percent decrease in payments per discharge from the 2006 LTCH PPS rate
year to the 2007 LTCH PPS rate year is largely attributable to the
change in the payment formula for SSO cases, the changes in the area
wage adjustment, and the increase in the outlier fixed-loss amount.
We project that LTCHs with greater than 200 beds will have the
smallest decrease in estimated 2007 LTCH PPS rate year payments per
discharge in comparison to the 2006 LTCH PPS rate year (2.4 percent),
followed by LTCHs with 75-124 beds (3.0 percent). This lower than
average decrease in projected payments per discharge for LTCHs with
greater than 200 beds and for LTCHs with 75-124 beds is largely due to
the changes to the area wage adjustment. Specifically, for LTCHs with
75-124 beds, the majority of these LTCHs are located in areas where the
change in the wage index value from RY 2006 to RY 2007 will be very
small, and therefore, we project that the changes to the area wage
adjustment will have a negligible impact on these LTCHs' RY 2007
payments (0.0 percent) rather than decreasing their RY 2007 payments
(as we estimate will be the impact of these changes for ``All
Providers'' as shown in Table 16). For LTCHs with greater than 200
beds, the majority of these LTCHs are located in areas where the RY
2007 wage index value is greater than the RY 2006 wage index value. In
addition, the majority of LTCHs with greater than 200 beds are located
in areas where the RY 2007 wage index value is greater than 1.0, and
therefore, are expected to experience an increase in payments per
discharge as a result of the increase in the labor-related share and
the progression of the 5-year phase-in of the wage index adjustment.
Payments per discharge for the 2007 LTCH PPS rate year for LTCHs
with 0-24 beds are projected to decrease the most in comparison to the
2006 LTCH PPS rate year (5.0 percent; see Table 16), followed by LTCHs
with 25-49 beds (4.4 percent; see Table 16). This higher than average
decrease in projected payments per discharge for LTCHs with less than
49 beds (that is, LTCHs in the 0-24 bed size category and LTCHs in the
25-49 bed size category) is largely due to the changes to the area wage
adjustment. Specifically, the majority of LTCHs with 49 beds or less
are located in areas where the RY 2007 wage index value is less than
the RY 2006 wage index value. In addition, the majority of LTCHs with
49 beds or less are located in areas where the RY 2007 wage index is
less than 1.0, and therefore, are expected to experience a higher than
average decrease in payments per discharge as a result of the increase
in the labor-related share and the progression of the 5-year phase-in
of the wage index adjustment.
5. Effect on the Medicare Program
Based on actuarial projections, an estimate of Medicare spending
(total estimated Medicare program payments) for LTCH services over the
next 5 years based on current LTCH PPS policy and based on policy
changes established in this final rule is shown in Table 18:

Table 18.--Five-Year Estimated Medicare Program Payments for LTCH Services
----------------------------------------------------------------------------------------------------------------
Estimated
payments Difference
Estimated based on reflecting
payments policy policy
LTCH PPS rate year based on changes changes
current established in established
policy ($ in this final in this final
billons) rule ($ in rule ($ in
billions) millions)
----------------------------------------------------------------------------------------------------------------
2007............................................................ 5.267 4.917 350
2008............................................................ 5.427 5.017 410
2009............................................................ 5.626 5.186 440
2010............................................................ 5.858 5.398 460
2011............................................................ 6.131 5.641 490
----------------------------------------------------------------------------------------------------------------

[[Page 27898]]

These estimates are based on the most recent LTCH data available,
including the projection that 98 percent of LTCHs will elect to be paid
based on 100 percent of the 2007 LTCH PPS rate year standard Federal
rate rather than the applicable transition blend, and an estimated
increase in the number of discharges from LTCHs. (We note that the 5-
year spending estimates shown in Table 18 are significantly higher than
the 5-year spending estimates presented in the RY 2006 LTCH PPS final
rule (70 FR 24203). This is primarily due to an adjustment by our
Office of the Actuary (OACT) to account for the significant increase in
the expected number of LTCH discharges based on the most recent
available LTCH discharge data.) The estimate of payments based on
current policy (shown in column 2 of Table 18) is based on the current
estimate of the increase in the excluded hospital with capital market
basket (currently used under the LTCH PPS) of 3.4 percent for the 2007
LTCH PPS rate year, 3.1 percent for the 2008 LTCH PPS rate year, 2.8
for the 2009 LTCH PPS rate year, 2.3 percent for the 2010 LTCH PPS rate
year and 2.7 percent for the 2011 LTCH PPS rate year. (We note that,
although we have established a zero percent update to the LTCH PPS
Federal rate for RY 2007 (as discussed in section V.C.3. of this final
rule) and are adopting the RPL market basket beginning in RY 2007 (as
discussed in section V.B. of this final rule), OACT develops its
spending projections based on existing policy and therefore, changes
that have not as yet been implemented are not reflected in the spending
projections shown in Table 18.) We estimate that there will be a change
in Medicare fee-for-service beneficiary enrollment of -0.3 percent in
the 2007 LTCH PPS rate year, 0.1 percent in the 2008 LTCH PPS rate
year, 0.2 percent in the 2009 LTCH PPS rate year, -0.3 percent in the
2010 LTCH PPS rate year, and -0.2 percent in the 2011 LTCH PPS rate
year, and an estimated increase in the total number of LTCHs. (We note
that, based on the most recent available data, OACT is projecting a
decrease in Medicare fee-for-service Part A enrollment, in part,
because they are projecting an increase in Medicare managed care
enrollment as a result of the implementation of several provisions of
the MMA.)
Consistent with the statutory requirement for budget neutrality, as
we discussed in the August 30, 2002 final rule that implemented the
LTCH PPS, in developing the LTCH PPS, we intended for estimated
aggregate payments under the LTCH PPS in FY 2003 would equal the
estimated aggregate payments that would have been made if the LTCH PPS
were not implemented. Our methodology for estimating payments for
purposes of the budget neutrality calculations for determining the FY
2003 standard Federal rate uses the best available data and necessarily
reflects assumptions. As we collect data from LTCHs, we will monitor
payments and evaluate the ultimate accuracy of the assumptions used to
calculate the budget neutrality calculations (that is, inflation
factors, intensity of services provided, or behavioral response to the
implementation of the LTCH PPS). As discussed in section V.D.6. of this
final rule, we still do not have sufficient new cost report and claims
data generated under the LTCH PPS to enable us to conduct a
comprehensive reevaluation of our FY 2003 budget neutrality calculation
at this time.
Section 123 of BBRA and section 307 of BIPA provide the Secretary
with extremely broad authority in developing the LTCH PPS, including
the authority for appropriate adjustments. In accordance with this
broad authority, we may discuss in a future proposed rule a possible
one-time prospective adjustment to the LTCH PPS rates under Sec.
412.523(d)(3) to maintain budget neutrality so that the effect of the
difference between actual payments and estimated payments for the first
year of the LTCH PPS is not perpetuated in the PPS rates for future
years. As discussed in section V.D.6. of this final rule, due to the
lag time in the availability of Medicare data upon which this
adjustment would be based, we have postponed the requirement
established in existing Sec. 412.523(d)(3) from the existing October
1, 2006 deadline to July 1, 2008.
6. Effect on Medicare Beneficiaries
Under the LTCH PPS, hospitals receive payment based on the average
resources consumed by patients for each diagnosis. We do not expect any
changes in the quality of care or access to services for Medicare
beneficiaries under the LTCH PPS, but we expect that paying
prospectively for LTCH services will enhance the efficiency of the
Medicare program.

C. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 19, we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this final rule. Table
19 provides our best estimate of the decrease in Medicare payments
under the LTCH PPS as a result of the changes presented in this final
rule based on the data for 347 LTCHs in our database. All expenditures
are classified as transfers to Medicare providers (that is, LTCHs).

Table 19.--Accounting Statement: Classification of Estimated
Expenditures, From the 2006 LTCH PPS Rate Year to the 2007 LTCH PPS Rate
Year
[In millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... Negative transfer--Estimated
decrease in expenditures:
$156.
From Whom to Whom?..................... Federal Government to LTCH
Medicare Providers.
------------------------------------------------------------------------

In accordance with the provisions of Executive Order 12866, this
final rule was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

0
1. The authority citation for part 412 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

[[Page 27899]]

Subpart O--Prospective Payment System for Long-Term Care Hospitals

0
2. Section 412.523 is amended by--
0
A. Revising paragraph (c)(3)(ii).
0
B. Adding new paragraph (c)(3)(iii).
0
C. Revising paragraph (d)(3).
The revisions and addition read as follows:

Sec. 412.523 Methodology for calculating the Federal prospective
payment rates.

* * * * *
(c) * * *
(3) * * *
(i) * * *
(ii) For long-term care hospital prospective payment system rate
years beginning on or after July 1, 2003 and ending on or before June
30, 2006. The standard Federal rate for long-term care hospital
prospective payment system rate years beginning on or after July 1,
2003 and ending on or before June 30, 2006 is the standard Federal rate
for the previous long-term care hospital prospective payment system
rate year, updated by the increase factor described in paragraph (a)(2)
of this section, and adjusted, as appropriate, as described in
paragraph (d) of this section. For the rate year from July 1, 2003
through June 30, 2004, the updated and adjusted standard Federal rate
is offset by a budget neutrality factor to account for updating the FY
2003 standard Federal rate on July 1 rather than October 1.
(iii) For long-term care hospital prospective payment system rate
year beginning July 1, 2006 and ending June 30, 2007. The standard
Federal rate for long-term care hospital prospective payment system
rate year beginning July 1, 2006 and ending June 30, 2007 is the
standard Federal rate for the previous long-term care hospital
prospective payment system rate year updated by zero percent. The
standard Federal rate is adjusted, as appropriate, as described in
paragraph (d) of this section.
* * * * *
(d) * * *
(3) One-time prospective adjustment. The Secretary reviews payments
under this prospective payment system and may make a one-time
prospective adjustment to the long-term care hospital prospective
payment system rates on or before July 1, 2008, so that the effect of
any significant difference between actual payments and estimated
payments for the first year of the long-term care hospital prospective
payment system is not perpetuated in the prospective payment rates for
future years.
* * * * *

0
3. Section 412.529 is amended by--
0
A. Revising paragraph (c).
0
B. Adding new paragraph (d).
0
C. Adding new paragraph (e).
The revision and addition read as follows:

Sec. 412.529 Special payment provision for short-stay outliers.

* * * * *
(c) Method for determining the payment amount. (1) For discharges
from long-term care hospitals described under Sec. 412.23(e)(2)(i),
occurring before July 1, 2006, the LTCH prospective payment system
adjusted payment amount for a short-stay outlier case is the least of
the following amounts:
(i) 120 percent of the LTC-DRG specific per diem amount determined
under paragraph (d)(1) of this section;
(ii) 120 percent of the estimated cost of the case determined under
paragraph (d)(2) of this section; or
(iii) The Federal prospective payment for the LTC-DRG determined
under paragraph (d)(3) of this section.
(2) For discharges occurring on or after July 1, 2006, from long-
term care hospitals described under Sec. 412.23(e)(2)(i), the LTCH
prospective payment system adjusted payment amount for a short-stay
outlier case is the least of the following amounts:
(i) 120 percent of the LTC-DRG specific per diem amount determined
under paragraph (d)(1) of this section;
(ii) 100 percent of the estimated cost of the case determined under
paragraph (d)(2) of this section;
(iii) The Federal prospective payment for the LTC-DRG as determined
under paragraph (d)(3) of this section; or
(iv) An amount payable under subpart O computed as a blend of an
amount comparable to the hospital inpatient prospective payment system
per diem amount determined under paragraph (d)(4)(i) of this section
and the 120 percent of the LTC-DRG specific per diem payment amount
determined under paragraph (d)(1) of this section.
(A) The blend percentage applicable to the 120 percent of the LTC-
DRG specific per diem payment amount determined under paragraph (d)(1)
of this section is determined by dividing the covered length-of-stay of
the case by the lesser of five-sixths of the geometric average length
of stay of the LTC-DRG or 25 days, not to exceed 100 percent.
(B) The blend percentage of the amount determined under paragraph
(d)(4)(i) of this section is determined by subtracting the percentage
determined in paragraph (A) from 100 percent.
(3) Short-stay outlier payments. (i) For discharges occurring on or
after October 1, 2002 and before August 8, 2003, no reconciliations are
made to short-stay outlier payments upon cost report settlement to
account for differences between the estimated cost-to-charge ratio and
the actual cost-to-charge ratio of the case.
(ii) For discharges occurring on or after August 8, 2003, short-
stay outlier payments are subject to the provisions of Sec.
412.84(i)(1), (i)(3), and (i)(4) and (m) for adjustments of cost-to-
charge ratios.
(iii) For discharges occurring on or after October 1, 2003, short-
stay outlier payments are subject to the provisions of Sec.
412.84(i)(2) for adjustments to cost-to-charge ratios.
(d) Calculation of alternative payment amounts. (1) Determining the
LTC-DRG per diem amount. CMS calculates the LTC-DRG per diem amount for
short-stay outliers for each LTC-DRG by dividing the product of the
standard Federal payment rate and the LTC-DRG relative weight by the
geometric average length of stay of the specific LTC-DRG multiplied by
the covered days of the stay.
(2) Determining the estimated cost of a case. To determine the
estimated cost of a case, CMS multiplies the hospital-specific cost-to-
charge ratio by the Medicare allowable charges for the case.
(3) Determining the Federal prospective payment for the LTC-DRG.
CMS calculates the Federal prospective payment for the LTC-DRG by
multiplying the adjusted standard Federal payment rate by the LTC-DRG
relative weight.
(4) Determining the amount comparable to the hospital inpatient
prospective payment system per diem amount. (i) General. Under Subpart
O, CMS calculates--
(A) An amount comparable to what would otherwise be paid under the
hospital inpatient prospective payment system based on the sum of the
applicable operating inpatient prospective payment system standardized
amount and the capital inpatient prospective payment system Federal
rate in effect at the time of the LTCH discharge.
(B) An amount comparable to the hospital inpatient prospective
payment system per diem amount for each DRG that is determined by
dividing the amount that would otherwise be paid under the hospital
inpatient prospective payment system computed under paragraph (A) of
this section by the hospital inpatient prospective payment system
geometric average length of stay of the specific DRG multiplied by the
covered days of the stay.
(C) For purposes of the blend amount described in paragraph
(c)(2)(iv) of this section, the payment amount specified under
subparagraph (B) of this section

[[Page 27900]]

may not exceed the full amount comparable to what would otherwise be
paid under the hospital inpatient prospective payment system determined
under subparagraph (A) of this section.
(ii) Hospital inpatient prospective payment system operating
standardized amount. The hospital inpatient prospective payment system
operating standardized amount--
(A) Is adjusted for the applicable hospital inpatient prospective
payment system DRG weighting factors.
(B) Is adjusted for different area wage levels based on the
geographic classifications set forth at Sec. 412.64(b)(1)(ii)(A)
through (C) and the applicable hospital inpatient prospective payment
system labor-related share, using the applicable hospital inpatient
prospective payment system wage index value for non-reclassified
hospitals. For LTCHs located in Alaska and Hawaii, this amount is also
adjusted by the applicable hospital inpatient prospective payment
system cost of living adjustment factors.
(C) Includes, where applicable, adjustments for indirect medical
education costs and the costs of serving a disproportionate share of
low-income patients.
(iii) Hospital inpatient prospective payment system capital Federal
rate. The hospital inpatient prospective payment system capital Federal
rate--
(A) Is adjusted for the applicable inpatient prospective payment
system DRG weighting factors.
(B) Is adjusted for the applicable geographic adjustment factors,
including local cost variation based on the geographic classifications
set forth at Sec. 412.64(b)(1)(ii)(A) through (C) and the applicable
full hospital inpatient prospective payment system wage index value for
non-reclassified hospitals and, applicable large urban location cost of
living adjustment factors for LTCHs in Alaska and Hawaii, if
applicable.
(C) Includes, where applicable, adjustments for indirect medical
education costs and the costs of serving a disproportionate share of
low-income patients.
(e) Short-stay outlier payments to long-term care hospitals
described under Sec. 412.23(e)(2)(ii).
(1) For discharges occurring on or after October 1, 2002, through
June 30, 2003, the LTCH prospective payment system adjusted payment
amount for a short-stay outlier case is the least of the following
amounts:
(i) 120 percent of the LTC-DRG specific per diem amount determined
under paragraph (d)(1) of this section;
(ii) 120 percent of the estimated cost of the case determined under
paragraph (d)(2) of this section; or
(iii) The Federal prospective payment for the LTC-DRG determined
under paragraph (d)(3) of this section.
(2) For discharges occurring on or after July 1, 2003, subject to
the provisions of paragraph (e)(2)(v) of this section, the adjusted
payment amount for a short-stay outlier is determined under the
formulas set forth in paragraphs (e)(1)(i) through (iv) of this section
with the following substitutions:
(i) For the first year of the transition period, as specified at
Sec. 412.533(a)(1), the 120 percent specified for the LTC-DRG specific
per diem amount and the 120 percent of the cost of the case in the
formula under paragraphs (e)(1)(i) and (e)(1)(ii) of this section are
substituted with 195 percent.
(ii) For the second year of the transition period, as specified at
Sec. 412.533(a)(2), the 120 percent specified for the LTC-DRG specific
per diem amount and the 120 percent of the cost of the case in the
formula under paragraphs (e)(1)(i) and (e)(1)(ii) of this section are
substituted with 193 percent.
(iii) For the third year of the transition period, as specified at
Sec. 412.533(a)(3), the 120 percent specified for the LTC-DRG specific
per diem amount and the 120 percent of the cost of the case in the
formula under paragraphs (e)(1)(i) and (e)(1)(ii) of this section are
substituted with 165 percent.
(iv) For the fourth year of the transition period, as specified at
Sec. 412.533(a)(4), the 120 percent specified for the LTC-DRG specific
per diem amount and 120 percent of the cost of the case in the formula
under paragraphs (e)(1)(i) and (e)(1)(ii) of this section are
substituted with 136 percent.
(v) For discharges occurring in cost reporting periods beginning on
or after October 1, 2006 (beginning with the fifth year of the
transition period), as specified at Sec. 412.533(a)(5), short-stay
outlier payments are made based on the least of the following amounts:
(A) 120 percent of the LTC-DRG specific per diem amount determined
under paragraph (d)(1) of this section;
(B) 120 percent of the estimated cost of the case determined under
paragraph (d)(2) of this section; or
(C) The Federal prospective payment for the LTC-DRG determined
under paragraph (d)(3) of this section.

0
4. Section 412.531 is amended by--
0
A. Revising paragraph (b)(1)(i)(C).
0
B. Redesignating paragraph (b)(1)(ii)(A)(2) as (b)(1)(ii)(A)(3).
0
C. Adding new paragraph (b)(1)(ii)(A)(2).
The revisions and additions read as follows:

Sec. 412.531 Special payment provisions when an interruption of a
stay occurs in a long-term care hospital.

* * * * *
(b) * * *
(1) * * *
(i) * * *
(C) Surgical DRG exception to the 3-day or less interruption of
stay policy.
(1) The number of days that a beneficiary spends away from a long-
term care hospital during a 3-day or less interruption of stay under
paragraph (a)(1) of this section during which the beneficiary receives
a procedure grouped to a surgical DRG under the hospital inpatient
prospective payment system in an acute care hospital during the 2005
and 2006 LTCH prospective payment system rate years are not included in
determining the length of stay of the patient at the long-term care
hospital.
(2) For discharges occurring on or after July 1 2006, the number of
days that a beneficiary spends away from a long-term care hospital
during a 3-day or less interruption of stay under paragraph (a)(1) of
this section during which the beneficiary receives a procedure grouped
to a surgical DRG under the hospital inpatient prospective payment
system in an acute care hospital are included in determining the length
of stay of the patient at the long-term care hospital.
* * * * *
(ii) * * *
(A) * * *
(2) For discharges occurring on or after July 1, 2006, for a 3-day
or less interruption of stay under paragraph (a)(1) of this section in
which a long-term care hospital discharges a patient to an acute care
hospital and the patient's treatment during the interruption is grouped
into a surgical DRG under the acute care hospital inpatient prospective
payment system, the services must be provided under arrangements in
accordance with Sec. 412.509(c). CMS does not make a separate payment
to the acute care hospital for the surgical treatment. The LTC-DRG
payment made to the long-term care hospital is considered payment in
full as specified in Sec. 412.521(b).
* * * * *

0
5. Section 412.534 is amended by--
0
A. Revising paragraph (c)(1).
0
B. Revising paragraph (c)(2).
0
C. Revising paragraph (d)(1).
0
D. Revising paragraph (e)(1).
0
E. Redesignating paragraph (f) as paragraph (g).

[[Page 27901]]

0
F. Adding new paragraph (f).
The revisions and addition read as follows:

Sec. 412.534 Special payment provisions for long-term care hospitals
within hospitals and satellites of long-term care hospitals.

* * * * *
(c) * * *
(1) Except as provided in paragraph (g) of this section, for any
cost reporting period beginning on or after October 1, 2004 in which
the long-term care hospital or its satellite facility has a discharged
Medicare inpatient population of whom no more than 25 percent were
admitted to the hospital or its satellite facility from the co-located
hospital, payments are made under the rules at Sec. 412.500 through
Sec. 412.541 in this subpart with no adjustment under this section.
(2) Except as provided in paragraph (d), (e), or (g) of this
section, for any cost reporting period beginning on or after October 1,
2004 in which the long-term care hospital or satellite facility has a
discharged Medicare inpatient population of whom more than 25 percent
were admitted to the hospital or satellite facility from the co-located
hospital, payments for the patients who are admitted from the co-
located hospital and who cause the long-term care hospital or satellite
facility to exceed the 25 percent threshold for discharged patients who
have been admitted from the co-located hospital are the lesser of the
amount otherwise payable under this subpart or the amount payable under
this subpart that is equivalent, as set forth in paragraph (f) of this
section, to the amount that would be determined under the rules at
Subpart A, Sec. 412.1(a). Payments for the remainder of the long-term
care hospital's or satellite facility's patients are made under the
rules in this subpart at Sec. 412.500 through Sec. 412.541 with no
adjustment under this section.
* * * * *
(d) * * *
(1) Subject to paragraph (g) of this section, in the case of a
long-term care hospital or satellite facility that is located in a
rural area as defined in Sec. 412.64(b)(1)(ii)(C) and is co-located
with another hospital for any cost reporting period beginning on or
after October 1, 2004 in which the long-term care hospital or satellite
facility has a discharged Medicare inpatient population of whom more
than 50 percent were admitted to the long-term care hospital or
satellite facility from the co-located hospital, payments for the
patients who are admitted from the co-located hospital and who cause
the long-term care hospital or satellite facility to exceed the 50
percent threshold for discharged patients who were admitted from the
co-located hospital are the lesser of the amount otherwise payable
under this subpart or the amount payable under this subpart that is
equivalent, as set forth in paragraph (f) of this section, to the
amount that were otherwise payable under subpart A, Sec. 412.1(a).
Payments for the remainder of the long-term care hospital's or
satellite facility's patients are made under the rules in this subpart
at Sec. 412.500 through Sec. 412.541 with no adjustment under this
section.
* * * * *
(e) * * *
(1) Subject to paragraph (g) of this section, in the case of a
long-term care hospital or satellite facility that is co-located with
the only other hospital in the MSA or with a MSA dominant hospital as
defined in paragraph (e)(4) of this section, for any cost reporting
period beginning on or after October 1, 2004 in which the long-term
care hospital or satellite facility has a discharged Medicare inpatient
population of whom more than the percentage calculated under paragraph
(e)(2) of this section were admitted to the hospital from the co-
located hospital, payments for the patients who are admitted from the
co-located hospital and who cause the long-term care hospital to exceed
the applicable threshold for discharged patients who have been admitted
from the co-located hospital are the lesser of the amount otherwise
payable under this subpart or the amount under this subpart that is
equivalent, as set forth in paragraph (f) of this section, to the
amount that otherwise would be determined under Subpart A, Sec.
412.1(a). Payments for the remainder of the long-term care hospital's
or satellite facility's patients are made under the rules in this
subpart with no adjustment under this section.
* * * * *
(f) Calculation of rates. (1) Calculation of LTCH prospective
payment system amount. CMS calculates an amount payable under subpart O
equivalent to an amount that would otherwise be paid under the hospital
inpatient prospective payment system based on the sum of the applicable
hospital inpatient prospective payment system operating standardized
amount and capital Federal rate in effect at the time of the LTCH
discharge.
(2) Operating inpatient prospective payment system standardized
amount. The hospital inpatient prospective payment system operating
standardized amount--
(i) Is adjusted for the applicable hospital inpatient prospective
payment system DRG weighting factors;
(ii) Is adjusted for different area wage levels based on the
geographic classifications set forth at Sec. 412.64(b)(1)(ii)(A)
through (C) and the applicable hospital inpatient prospective payment
system labor-related share, using the applicable hospital inpatient
prospective payment system wage index value for non-reclassified
hospitals. For LTCHs located in Alaska and Hawaii, this amount is also
adjusted by the applicable hospital inpatient prospective payment
system cost of living adjustment factors;
(iii) Includes, where applicable, adjustments for indirect medical
education costs and the costs of serving a disproportionate share of
low-income patients.
(3) Hospital inpatient prospective payment system capital Federal
rate. The hospital inpatient prospective payment system capital Federal
rate--
(i) Is adjusted for the applicable hospital inpatient prospective
payment system DRG weighting factors;
(ii) Is adjusted by the applicable geographic adjustment factors,
including local cost variation based on the applicable geographic
classifications set forth at Sec. 412.64(b)(1)(ii)(A) through (C) and
the applicable full hospital inpatient prospective payment system wage
index value for non-reclassified hospitals, applicable large urban
location and cost of living adjustment factors for LTCHs for Alaska and
Hawaii, if applicable;
(iii) Includes, where applicable, capital inpatient prospective
payment system adjustments for indirect medical education costs and the
costs of serving a disproportionate share of low-income patients.
(4) High cost outlier. An additional payment for high cost outlier
cases is based on the fixed loss amount established for the hospital
inpatient prospective payment system.
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

[[Page 27902]]

Dated: April 19, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: May 1, 2006.
Michael O. Leavitt,
Secretary.

The following Appendix will not appear in the Code of Federal
Regulations.

Appendix A--Description of a Preliminary Model of an Update Framework
under the LTCH PPS

Section 307(b) of the BIPA requires that the Secretary shall
examine and may provide for appropriate adjustments to the LTCH PPS,
including updates. Updates are necessary to appropriately account
for changes in the prices of goods and services used by a provider
in furnishing care to patients. A market basket has historically
been used under the Medicare program in setting update factors for
services furnished by providers. When we established the LTCH PPS
for FY 2003 in the August 30, 2002 final rule (67 FR 56030), we
established under Sec. 412.523(c)(3)(ii) that for FYs after FY
2003, the LTCH PPS Federal rate was to be the previous year's
Federal rate updated by the most recent estimate of the LTCH PPS
market basket. When we moved the date of the annual update of the
LTCH PPS from October 1 to July 1, beginning with the RY 2004 LTCH
PPS final rule (68 FR 34138), we revised Sec. 412.523(c)(3)(ii) to
specify that for LTCH PPS rate years beginning on or after July 1,
2003, the annual update to the standard Federal rate for the LTCH
prospective payment system will be equal to the previous rate year's
Federal rate updated by the most recent estimate of the LTCH PPS
market basket. (Currently, the LTCH PPS market basket is the FY
1997-based excluded hospital with capital market basket index (68 FR
34134 through 34137); however, as discussed in section IV.B. of this
final rule, we are adopting the FY 2002-based RPL market basket
under the LTCH PPS beginning in RY 2007.) As we discuss in section
IV.C.3. of this final rule, based on our analysis of the best
available LTCH case-mix and margins data, we are revising Sec.
412.523(c) to specify that for the 2007 LTCH PPS rate year, the
standard Federal rate from the previous year will be updated by a
factor of zero percent. However, in the future we may propose to
develop an update framework to update payments to LTCHs that would
account for other appropriate factors that affect the efficient
delivery of services and care provided to Medicare patients. The
update framework would be proposed in accordance with the notice and
comment rulemaking process. While we are not implementing a specific
update framework for the LTCH prospective payment system at this
time in this final rule, we are repeating below the conceptual basis
for developing such an update framework that was outlined in the RY
2007 LTCH PPS proposed rule (71 FR 4742 through 4747) using the
latest available data.

A. Need for an Update Framework

Under the LTCH prospective payment system, Medicare payments to
LTCHs are based on a predetermined national payment amount per
discharge. Under section 123 of the BBRA and section 307(b) of the
BIPA, the Secretary has broad discretionary authority to make
appropriate adjustments to the LTCH payment system, including
updates to the payment rates. Our goal is to develop a method for
analyzing and comparing expected trends in the underlying cost per
discharge to use in establishing these updates. However, as stated
earlier, until an appropriate update framework is developed, future
updates may be based on the increase in the applicable LTCH PPS
market basket.
The market basket for the LTCH PPS, developed by OACT,
represents only one component in the measure of growth in LTCHs'
costs per discharge. It captures only the pure price change of
inputs (labor, materials, and capital) used by the hospital to
produce a constant quantity and quality of care. However, other
factors also contribute to the change in costs per discharge,
including changes in case-mix, intensity, and productivity.
Previously, under the acute care hospital IPPS for operating
costs (the operating IPPS), we utilized an update framework to
account for these other factors and to make annual recommendations
to the Congress concerning the magnitude of the update. We continue
to use a similar framework under the acute care hospital IPPS for
capital costs (the capital IPPS) to determine the annual update to
the capital IPPS Federal rate. Based on our experience in developing
other update frameworks, we are currently examining these factors
and exploring ways that they could be measured and incorporated into
an update framework for the LTCH PPS. We are also examining
additional conceptual and data issues that must be considered when
the framework is constructed and applied.
In the August 30, 2002 final rule (67 FR 56087), we pointed out
that it is important to develop successively more refined models of
an update framework based on our evaluation of public comments and
recommendations submitted to us on this issue. We would then further
study the potential adjustments using the best available data. To
actively pursue the development of an analytical framework that
would support the continued appropriateness and relevance of the
payment rates for services provided to beneficiaries in LTCHs, in
the RY 2007 LTCH PPS proposed rule, we solicited comments concerning
the use and feasibility of the conceptual approach outlined in
section B of this Appendix. Specifically, we requested comments
concerning which factors are appropriate and should be accounted for
in the framework, and suggestions concerning potential data sources
and analysis to support the model. As with the existing methodology
used under the capital IPPS, the features of a LTCH-specific update
framework would need to be based on sound policy and methodology. In
this final rule we are again presenting a conceptual basis for the
framework along with an illustrative LTCH PPS framework for RY 2007
based on the latest available data (shown in section E of this
Appendix). We received two comments on the conceptual basis for the
framework, which included an illustrative LTCH PPS framework for RY
2007 that was presented in the RY 2007 LTCH PPS proposed rule. These
comments are addressed below in section G of this Appendix.

B. Factors Inherent in LTCH Payments Per Discharge

To understand the factors that determine LTCH costs per
discharge, it is first necessary to understand the factors that
determine LTCH payments per discharge. Payments per discharge under
the LTCH PPS are based on the cost and an implicit normal profit
margin to the LTCH in providing an efficient level of care. We have
developed a methodology to identify a mutually exclusive and
exhaustive set of factors included in LTCH payments per discharge.
The discussion here details a set of equations to identify these
factors.
In its simplest form, the average payment per discharge to a
LTCH can be separated into a cost term and a profit term as shown in
Equation 1.
[GRAPHIC] [TIFF OMITTED] TR12MY06.002

This equation can be made multiplicative by converting profit
per discharge into a profit rate as shown in Equation 2.
[GRAPHIC] [TIFF OMITTED] TR12MY06.003

[[Page 27903]]

An output price term can be introduced into the equation by
multiplying and dividing through by input prices and productivity.
As shown in Equation 3, the term inside the brackets represents the
output price, since an output price reflects the input price and
profit margin adjusted for productivity.
[GRAPHIC] [TIFF OMITTED] TR12MY06.004

The cost per discharge term can be further separated by
accounting for real case-mix. Under the LTCH PPS, LTC-DRGs are used
to classify patients. Based on accurate DRG classification data,
average real case-mix per discharge can be incorporated, as shown in
Equation 4.
[GRAPHIC] [TIFF OMITTED] TR12MY06.005

The term ``real'' is imperative here because only true case-mix
should be measured, not case-mix caused by improper coding behavior.
We believe payment should be based on changes in ``real'' case-mix
(that is, the treatment of more resource intensive and costly
patients) rather than case mix caused by improper coding behavior or
changes in coding practice (that is, ``apparent'' case-mix change)
because ``apparent'' case-mix increase does not result in an
increase in a hospital's cost of treating those patients. By
rearranging the terms in Equation 4, a set of mutually exclusive and
exhaustive factors such as those shown in Equation 5 can be
identified.
[GRAPHIC] [TIFF OMITTED] TR12MY06.006

The term in brackets can be analyzed in two steps. First,
excluding the productivity term results in case-mix adjusted real
cost per discharge, which is input intensity per discharge. Second,
multiplying input intensity by productivity results in case-mix
adjusted real payment per discharge, or output intensity per
discharge. The rationale behind this step is explained in detail in
section C.
The result of this exercise is that LTCH payment per discharge
can be determined from the following factors as shown in Equation 6.
[GRAPHIC] [TIFF OMITTED] TR12MY06.007

Thus, it holds that the change in LTCH payment per discharge is
a function of the change in these factors as shown in Equation 6. In
order to determine an annual update that most accurately reflects
the underlying cost to the LTCH of efficiently providing care, the
four factors related to cost must be accounted for when an update
framework is developed. A brief discussion of each factor, including
specific conceptual and data issues, is provided in section C.

C. Defining Each Factor Inherent in LTCH Costs Per Discharge

Each cost factor from Equation 6 in section B is discussed here
in detail. Because this is a basic conceptual discussion, it is
likely that more detailed issues may be relevant that are not
explored here.

1. Input Prices

Input prices are the pure prices of inputs used by the LTCH in
providing services. When we refer to inputs, we are referring to
costs, which have both a price and a quantity component. The price
is an input price, and the quantity component reflects real inputs
or real costs. Similarly, when we refer to outputs, we are referring
to payments, which also have both a price and a quantity component.
The price component is the transaction output price, and the
quantity component is the real output or real payment. The real
inputs include labor, capital, and other materials, such as drugs.
By definition, an input price reflects prices that LTCHs encounter
in purchasing these inputs, whereas an output price reflects the
prices that buyers encounter in purchasing LTCH services. We
currently measure input prices using the excluded hospital with
capital market basket; however, as discussed in section IV.B. of
this final rule, we are implementing our proposal to adopt the RPL
market basket, which is based on the operating and capital costs of
IRFs, IPFs and LTCHs. While not specific to LTCHs, we believe this
index would adequately reflect the input prices faced by LTCHs.

2. Productivity

Productivity measures the efficiency of the LTCH in producing
outputs. It is the amount of real outputs, or real payments that can
be produced from a given amount of real inputs or real costs. For
LTCHs, these inputs are in the form of both labor and capital; thus,
they represent multifactor productivity, as not just labor
productivity is reflected. Equation 7 shows how multifactor
productivity can be

[[Page 27904]]

measured in terms of available data, such as payments, costs, and
input prices:
[GRAPHIC] [TIFF OMITTED] TR12MY06.008

Rearranging the terms, this multifactor productivity equation
(Equation 7) was used as the basis for incorporating an output price
term in Equation 3. This equation is the basis for understanding the
relationship between input prices, output prices, profit margins,
and productivity.
Equation 6 shows that productivity is divided through the
equation, offsetting other factors. The theory behind this offset is
that if an efficient LTCH in a competitive market can produce more
output with the same amount of inputs, the full increase in input
costs does not have to be passed on by the provider to maintain a
normal profit margin.

3. Real Case Mix Per Discharge

Real case mix per discharge is the average overall mix of care
provided by the LTCH, as measured using the LTC-DRG classification
system. Over time, a measure of real case-mix will change as care is
given in more or less complex LTC-DRGs. Changes in the level of care
within a LTC-DRG classification group would not be reflected in a
case-mix measure based on LTC-DRGs, but instead should be captured
in the intensity factor of Equation 6. The important distinction
here is the difference between real and nominal case-mix. Under the
LTCH prospective payment system, LTCHs will submit claims using the
LTC-DRG classification system. The case-mix reflected by the claims
is considered ``nominal''. However, the reported classification can
reflect the true level of care provided or improper coding behavior.
An example of improper coding behavior would be the upcoding, or
case-mix ``creep'', that took place when the acute care hospital
IPPS was implemented. (For further details, see ProPAC's March 1,
1994 Report and Recommendations to Congress (pp. 73-74).) Any change
in case-mix that is not associated with the actual level of care or
a true change in the level of care provided must be excluded in
order to determine real case-mix.

4. Case-Mix Constant Real Output Intensity Per Discharge

Intensity is the true underlying nature of the product or
service and can take the form of output or input intensity, or both.
In the case of LTCHs, output intensity per discharge is associated
with real payment per discharge, while input intensity per discharge
is associated with real cost per discharge. For example, input
intensity would be associated with a nurse's hours when providing
treatment, whereas output intensity would be associated with the
type and number of treatments a nurse provides. The underlying
nature of LTCH services is determined by factors such as
technological capabilities, increased utilization of inputs (such as
labor or drugs), site of care, and practice patterns. Because these
factors can be difficult to measure, intensity per discharge is
usually calculated as a residual after the other factors from
Equation 6 were accounted for.
Accounting for output intensity associated with an efficient
LTCH can be more accurately analyzed using a LTCH's costs rather
than its payments. This analysis would also provide an alternative
to developing or using a transaction output price index. Equation 8
shows how to use the definition of an output price as defined
earlier to convert the equation for output intensity per discharge
to reflect costs instead of payments, as used in Equation 6.
[GRAPHIC] [TIFF OMITTED] TR12MY06.009

The last equation in Equation 8 is identical to the term in
brackets in Equation 5, case-mix constant real input intensity per
discharge multiplied by productivity. Thus, output intensity per
discharge can be defined in such a way that cost data from the LTCH
are utilized. This equation can be broken down even further to
account for different types of input intensity per discharge. We
discuss this matter more fully in section D.

D. Applying the Factors That Affect LTCH Costs Per Discharge in an
Update Framework

As discussed earlier, payments per discharge under the LTCH PPS
have been updated annually since the LTCH PPS was implemented for
cost-reporting periods beginning on or after October 1, 2002. Under
this final rule, the standard Federal rate from the previous year
will be updated by a factor of zero percent based on our analysis of
LTCH margins and case-mix using the best available data. The
development of an update framework with a sound conceptual basis
provides the capability to understand the underlying trends in LTCH
costs per discharge for an efficient provider.
Previously we identified factors inherent in LTCH costs per
discharge. Changes in these factors determine the change in LTCH
costs per discharge and fitting these factors into an appropriate
framework would allow us to accurately reflect changes in the
underlying costs for efficient LTCHs. The following explanation
accounts for each of these factors from Equation 6 under the LTCH
PPS:

[[Page 27905]]

Change in case-mix constant real output intensity per
discharge would be accounted for in the update framework, reflecting
the factors that affect not only case-mix constant real input
intensity per discharge, but also productivity, which is determined
separately. Factors that can cause changes in case-mix constant real
input intensity per discharge include, but are not limited to,
changes in site of service, changes in within-LTC-DRG case-mix,
changes in practice patterns, changes in the use of inputs, and
changes in technology available.
Changes in nominal case-mix are automatically included
in the payment to the LTCH. Therefore, the update framework should
include an adjustment to convert changes in nominal case-mix per
discharge to changes in real case-mix per discharge, if they are
different.
Change in multifactor productivity would be accounted
for in the update framework. The availability of historical data on
input prices, payments, and costs are useful in the analysis of this
factor.
Changes in input prices for labor, material, and
capital would be accounted for in the update framework using an
input price index, or market basket. To assist in updating payments
for LTCH services, OACT currently has developed an input price
index; this is currently the excluded hospital with capital market
basket, and we are finalizing our proposal to adopt the RPL market
basket under the LTCH PPS as discussed in section IV.B. of the
preamble of this final rule.
In an update framework, a forecast error adjustment
would be included to reflect that the updates are set prospectively
and a forecast error for a given year should not be perpetuated in
payments for future years. In the case of the acute care hospital
IPPS, this prospective adjustment is made on a 2-year lag and only
if the error exceeds a defined threshold (0.25 percentage points).

E. Illustrative LTCH Prospective Payment System Update Framework for
the 2007 LTCH PPS Rate Year

Table 20 shows an illustrative update framework for the LTCH PPS
for RY 2007 based on the latest available data. Some of the factors
in the LTCH framework are computed using Medicare cost report data,
while others are determined based on policy considerations. This is
consistent with the factors in the capital IPPS update framework.
This design for a LTCH update framework is for illustrative purposes
only, as much more work needs to be done to determine the
appropriate level of detail for each factor.
MedPAC supported this for updating payments and applied a
similar framework when it proposed updates to hospital payments in
its annual Report to Congress (MedPAC, 2000). The appropriateness of
this framework for updating hospital payments was also discussed in
the article, ``Are PPS Payments Adequate? Issues for Updating and
Assessing Rates'' (Health Care Financing Review, Winter 1992). We
believe a similar framework would be useful for analyzing updates to
LTCH payments.
If we applied this update framework to determine the LTCH PPS
standard Federal rate for RY 2007, the update factor for RY 2007
would be -0.6 percent. This estimate is based on the best available
data at this time. The estimated update factor is based on a
projected 3.4 percent increase in the RPL market basket, a 0.0
adjustment for intensity, a -0.9 percent adjustment for
productivity, a -4.0 percent adjustment for case-mix, and a forecast
error correction of 0.9 percent. The following is a description of
the policy adjustments that have been applied under the illustrative
LTCH PPS update framework for RY 2007.
The CMI is the measure of the average DRG weight for cases paid
under the LTCH PPS. Because the DRG weight determines the
prospective payment for each case, any percentage increase in the
CMI corresponds to an equal percentage increase in hospital
payments.
The CMI can change for any of several reasons:
Changes in the average resource use of Medicare
patients ( real case-mix change);
Changes in hospital coding of patient records resulting
in higher weight DRG assignments (``apparent'' CMI).
We define real case-mix change as actual changes in the mix (and
resource requirements) of Medicare patients as opposed to changes in
coding behavior that result in assignment of cases to higher
weighted DRGs but do not reflect higher resource requirements.
As discussed in section IV.C.3. of the preamble of this final
rule, for RY 2007, we are estimating a 6.75 percent nominal increase
in the CMI. We estimate that the real case-mix increase would equal
2.75 percent in RY 2007. The net adjustment for change in case-mix
is the difference between the projected increase in real case-mix
and the projected nominal increase in real case-mix. Therefore, the
estimated adjustment for case-mix change would be -4.0 percentage
points (2.75 percent minus 6.75 percent).
The framework also contains an adjustment for forecast error.
The market basket forecast is based on historical trends and
relationships ascertainable at the time the update factor is
established for the upcoming year. In any given year, there may be
unanticipated price fluctuations that may result in differences
between the actual increases in prices and the forecast used in
calculating the update factors. There is a 2-year lag between the
forecast and the measurement of the forecast error. A forecast error
of 0.9 percentage points was calculated for the RY 2005 update. That
is, current historical data indicate that the forecasted RY 2005
market basket (3.1 percent) understated the actual realized price
increases (4.0 percent) by 0.9 percentage points. Therefore, a 0.9
percent adjustment would be appropriate to account for the forecast
error under the illustrative LTCH PPS update framework for RY 2007.
Under this framework, we also make an adjustment for
productivity, an efficiency measure. Productivity measures the
ability of hospitals to reduce the quantity of inputs required to
produce a unit of service while maintaining quality. MedPAC has
recommended a productivity target based on the Bureau of Labor
Statistics' estimate of the 10-year moving national average rate of
productivity growth. The productivity target currently equals 0.9
percent. This target is lower than the productivity estimate
calculated using the latest available LTCH cost report data.
Therefore, under the illustrative LTCH PPS update framework for RY
2007, we would recommend a 0.9 percent adjustment for productivity.
We also make an adjustment for changes in intensity. The
intensity factor reflects how hospital services are utilized to
produce the final product, that is, the discharge. This component
accounts for changes in these types of factors, such as the use of
quality-enhancing services, for changes in within-DRG severity, and
for expected modification of practice patterns to remove non-cost
effective services. Based on the latest available LTCH data, we
calculated a negative intensity factor. As we have done in the past
under the IPPS when we have found that case-mix consistent intensity
is declining, we believe that it would be appropriate to apply a
zero intensity adjustment under the illustrative LTCH PPS update
framework for RY 2007 (August 1, 2000, 65 FR 47119).
Table 20 illustrates what a possible LTCH PPS update framework
would be if we proposed to determine the annual update to the LTCH
PPS Federal rate based on a framework model such as this for RY
2007. This conceptual model of a LTCH PPS update framework is for
illustrative purposes only. As we discuss in greater detail in
section IV.C.3. of the preamble of this final rule, we are
establishing a zero percent update to the LTCH PPS standard Federal
rate for RY 2007.

Table A-1.--Illustrative LTCH PPS Update Framework for RY 2007
------------------------------------------------------------------------
Factors Percent change
------------------------------------------------------------------------
Price (+):.............................................. 4.3
Proposed RPL Market Basket.......................... 3.4
Forecast Error...................................... 0.9
Productivity(-)......................................... 0.9
Output Intensity (+):................................... 0.0
Input Intensity..................................... -0.9
Productivity........................................ 0.9
Case-mix Creep Adjustment (+):.......................... -4.0
Nominal Case-Mix.................................... -6.75
Real Case-Mix....................................... 2.75
Other factors (+)....................................... 0.0
---------------
Total............................................... -0.6
------------------------------------------------------------------------

F. Additional Conceptual and Data Issues

Additional conceptual issues specific to the LTCH PPS include
the relevance of a site-of-service substitution adjustment, the
necessity of an adjustment for LTC-DRG reclassification, the
handling of one-time factors, and consistency with other types of
hospital updates since LTCHs are similar in structure to these other
types of hospitals.
Under the acute care hospital IPPS, a site-of-service
substitution factor (captured as part of intensity) was necessary
because of

[[Page 27906]]

the incentive to shift care from the inpatient hospital to other
settings such as hospital outpatient departments, SNFs, or HHAs. For
the LTCH PPS, it is not clear without additional research whether
there is an incentive to shift care either into or out of the LTCH
because of the changes in behavior created by the different Medicare
payment systems.
A reclassification and recalibration adjustment under the acute
care hospital IPPS is necessary to account for changes in the case-
mix or the types of patients treated by hospitals resulting from the
annual reclassification and recalibration of the DRGs. This
adjustment for case-mix is applied to the current FY update, but
reflects the effect of revisions in the FY that is 2 years before
that fiscal year. Whether a LTC-DRG reclassification adjustment
would be necessary in the update framework would depend on the data
availability and the likelihood of revisions to LTC-DRG
classifications on a periodic basis.
There is also a question about how to handle one-time factors
(an example of these could be the increased costs of converting
computer systems to Year 2000 compliance). An update framework might
be an appropriate mechanism to account for these items, but because
of uncertainty surrounding their impact on costs, determining an
appropriate adjustment amount may be difficult.
LTCHs are heterogeneous and are designated as a separate payment
category only because their patients have longer average lengths of
stay. This raises the question of whether certain factors in an
update framework for LTCHs should be consistent with the factors in
an update framework for other types of hospitals since they face
similar cost pressures. Additional research in this area would need
to be conducted to determine the reasonableness of having consistent
updates.
The purpose of this conceptual discussion is not to determine
how the identified factors of the update framework would be
measured. We recognize that there are significant measurement issues
in accurately determining the factors that would account for growth
in costs per discharge for efficiently providing care. This is
driven, in part, by the shift from a cost-based payment system with
an upper payment limit to a PPS. Significant research and data
collection would be necessary to accurately measure these factors
over the historical period. One example of this would be to measure
the distinction between real and nominal case-mix change. However,
many of these same concerns were also encountered and successfully
addressed in the hospital IPPS update framework.
The discussion here provides the conceptual basis for developing
an update framework for the LTCH PPS that reflects changes in the
underlying costs of efficiently providing services. It is important
to note that the framework would not handle distribution issues such
as geographic wage variations. Due to some variations in technical
methodologies for measuring the factors of an update framework, and
because of some of the data concerns mentioned earlier, implementing
an update framework for the LTCH PPS would involve making
significant policy decisions on issues similar to those made for the
hospital IPPS update framework.

G. Summary of Public Comments and CMS Responses

Comment: One commenter stated that given the complexity of the
conceptual ideas put forth for updating the LTCH payments and the
limited time afforded to comment on the entire proposed rule, CMS
should extend the time frame to which it will accept comments
regarding the update framework. Commenters also recommended that CMS
further refine the update framework with input from the industry.
Response: We note that in accordance with section 1871 of the
Act, we provided for a 60-day comment period, which closed at 5 p.m.
on March 20, 2006, for the public to provide comments on the
proposed policy changes and clarifications presented in the RY 2007
LTCH PPS proposed rule (71 FR 4648). Moreover, we reiterate that we
are not implementing a specific update framework for determining the
RY 2007 Federal rate under the LTCH PPS at this time. As we stated
in the RY 2007 LTCH PPS proposed rule, we intend for the development
of such an update framework to be a process that evolves after
evaluating input from the industry. Therefore, we are open to
working with the public to refine the data sources and formulas used
to determine the values of the individual components of such a
framework that would be proposed, in the future, to update the
standard Federal rate. Therefore, as noted previously in the
Appendix, we continue to solicit comments to assist us in refining
the data sources and methods that would be used to implement such a
framework under the LTCH PPS. Any future proposal to develop an
update framework would be proposed in accordance with the notice and
comment rulemaking process.
Comment: One commenter was concerned that some inputs into this
``new market basket methodology'' (that is, the conceptual model of
an update framework) appear to be subjective and at the discretion
of CMS. The commenter believes that the market basket update should
be calculated using objective, reliable, and verifiable mathematical
concepts and publicly available data, rather than using ``policy
considerations'' and other subjective variables.
Response: We would like to clarify that this is not a ``new
market basket methodology,'' but instead a way to determine an
appropriate payment update. The market basket is only one factor of
a complex update framework. We support the public's involvement in
helping us refine the data sources and methods that could be used to
implement an update framework. While it is our preference to use
``verifiable mathematical concepts and publicly available data,''
there may be instances in which such data is unavailable. Therefore,
there will be a need to utilize policy considerations and other
subjective information in determining a proposed update framework.
We believe it would be inappropriate to implement the framework
without having all of the factors reflected.
The following addendum will not appear in the Code of Federal
Regulations.

Addendum

This addendum contains the tables referred to throughout the
preamble to this final rule. The tables presented below are as
follows:
Table 1: Long-Term Care Hospital Wage Index for Urban Areas for
Discharges Occurring from July 1, 2006 through June 30, 2007
Table 2: Long-Term Care Hospital Wage Index for Rural Areas for
Discharges Occurring from July 1, 2006 through June 30, 2007
Table 3: FY 2006 LTC-DRG Relative Weights, Geometric Average Length
of Stay and five-sixths of the Geometric Average Length of Stay (for
Short-Stay Outlier Cases) for Discharges Occurring on or after
October 1, 2005 through September 30, 2006. (Note: This is the same
information provided in Table 11 of the FY 2006 IPPS final rule (70
FR 47681 through 47690), which has been reprinted here for
convenience.)

Table 1.--Long-Term Care Hospital Wage Index for Urban Areas for
Discharges Occurring From July 1, 2006 Through June 30, 2007\1\

------------------------------------------------------------------------
Urban area \3/5\ \4/5\ Full
CBSA code (constituent wage wage wage
counties) index\2\ index\3\ index\4\
------------------------------------------------------------------------
10180........... Abilene, TX.......... 0.8738 0.8317 0.7896
Callahan County, TX.
Jones County, TX....
Taylor County, TX...
10380........... Aguadilla-Isabela-San 0.6843 0.5790 0.4738
Sebasti[aacute], PR.
Aguada Municipio, PR
Aguadilla Municipio,
PR.

[[Page 27907]]

A[ntilde]asco
Municipio, PR.
Isabela Municipio,
PR.
Lares Municipio, PR.
Moca Municipio, PR..
Rinc[oacute]n
Municipio, PR.
San Sebasti[aacute]
Municipio, PR.
10420........... Akron, OH............ 0.9389 0.9186 0.8982
Portage County, OH..
Summit County, OH...
10500........... Albany, GA........... 0.9177 0.8902 0.8628
Baker County, GA....
Dougherty County, GA
Lee County, GA......
Terrell County, GA..
Worth County, GA....
10580........... Albany-Schenectady- 0.9153 0.8871 0.8589
Troy, NY.
Albany County, NY...
Rensselaer County,
NY.
Saratoga County, NY.
Schenectady County,
NY.
Schoharie County, NY
10740........... Albuquerque, NM...... 0.9810 0.9747 0.9684
Bernalillo County,
NM.
Sandoval County, NM.
Torrance County, NM.
Valencia County, NM.
10780........... Alexandria, LA....... 0.8820 0.8426 0.8033
Grant Parish, LA....
Rapides Parish, LA..
10900........... Allentown-Bethlehem- 0.9891 0.9854 0.9818
Easton, PA-NJ.
Warren County, NJ...
Carbon County, PA...
Lehigh County, PA...
Northampton County,
PA.
11020........... Altoona, PA.......... 0.9366 0.9155 0.8944
Blair County, PA....
11100........... Amarillo, TX......... 0.9494 0.9325 0.9156
Armstrong County, TX
Carson County, TX...
Potter County, TX...
Randall County, TX..
11180........... Ames, IA............. 0.9722 0.9629 0.9536
Story County, IA....
11260........... Anchorage, AK........ 1.1137 1.1516 1.1895
Anchorage
Municipality, AK.
Matanuska-Susitna
Borough, AK.
11300........... Anderson, IN......... 0.9152 0.8869 0.8586
Madison County, IN..
11340........... Anderson, SC......... 0.9398 0.9198 0.8997
Anderson County, SC.
11460........... Ann Arbor, MI........ 1.0515 1.0687 1.0859
Washtenaw County, MI
11500........... Anniston-Oxford, AL.. 0.8609 0.8146 0.7682
Calhoun County, AL..
11540........... Appleton, WI......... 0.9573 0.9430 0.9288
Calumet County, WI..
Outagamie County, WI
11700........... Asheville, NC........ 0.9571 0.9428 0.9285
Buncombe County, NC.
Haywood County, NC..
Henderson County, NC
Madison County, NC..
12020........... Athens-Clarke County, 0.9913 0.9884 0.9855
GA.
Clarke County, GA...
Madison County, GA..
Oconee County, GA...
Oglethorpe County,
GA.
12060........... Atlanta-Sandy Springs- 0.9876 0.9834 0.9793
Marietta, GA.

[[Page 27908]]

Barrow County, GA...
Bartow County, GA...
Butts County, GA....
Carroll County, GA..
Cherokee County, GA.
Clayton County, GA..
Cobb County, GA.....
Coweta County, GA...
Dawson County, GA...
DeKalb County, GA...
Douglas County, GA..
Fayette County, GA..
Forsyth County, GA..
Fulton County, GA...
Gwinnett County, GA.
Haralson County, GA.
Heard County, GA....
Henry County, GA....
Jasper County, GA...
Lamar County, GA....
Meriwether County,
GA.
Newton County, GA...
Paulding County, GA.
Pickens County, GA..
Pike County, GA.....
Rockdale County, GA.
Spalding County, GA.
Walton County, GA...
12100........... Atlantic City, NJ.... 1.0969 1.1292 1.1615
Atlantic County, NJ.
12220........... Auburn-Opelika, AL... 0.8860 0.8480 0.8100
Lee County, AL......
12260........... Augusta-Richmond 0.9849 0.9798 0.9748
County, GA-SC.
Burke County, GA....
Columbia County, GA.
McDuffie County, GA.
Richmond County, GA.
Aiken County, SC....
Edgefield County, SC
12420........... Austin-Round Rock, TX 0.9662 0.9550 0.9437
Bastrop County, TX..
Caldwell County, TX.
Hays County, TX.....
Travis County, TX...
Williamson County,
TX.
12540........... Bakersfield, CA...... 1.0282 1.0376 1.0470
Kern County, CA.....
12580........... Baltimore-Towson, MD. 0.9938 0.9918 0.9897
Anne Arundel County,
MD.
Baltimore County, MD
Carroll County, MD..
Harford County, MD..
Howard County, MD...
Queen Anne's County,
MD.
Baltimore City, MD..
12620........... Bangor, ME........... 0.9996 0.9994 0.9993
Penobscot County, ME
12700........... Barnstable Town, MA.. 1.1560 1.2080 1.2600
Barnstable County,
MA.
12940........... Baton Rouge, LA...... 0.9156 0.8874 0.8593
Ascension Parish, LA
East Baton Rouge
Parish, LA.
East Feliciana
Parish, LA.
Iberville Parish, LA
Livingston Parish,
LA.
Pointe Coupee
Parish, LA.
St. Helena Parish,
LA.
West Baton Rouge
Parish, LA.

[[Page 27909]]

West Feliciana
Parish, LA.
12980........... Battle Creek, MI..... 0.9705 0.9606 0.9508
Calhoun County, MI..
13020........... Bay City, MI......... 0.9606 0.9474 0.9343
Bay County, MI......
13140........... Beaumont-Port Arthur, 0.9047 0.8730 0.8412
TX.
Hardin County, TX...
Jefferson County, TX
Orange County, TX...
13380........... Bellingham, WA....... 1.1039 1.1385 1.1731
Whatcom County, WA..
13460........... Bend, OR............. 1.0472 1.0629 1.0786
Deschutes County, OR
13644........... Bethesda-Gaithersburg- 1.0890 1.1186 1.1483
Frederick, MD.
Frederick County, MD
Montgomery County,
MD.
13740........... Billings, MT......... 0.9300 0.9067 0.8834
Carbon County, MT...
Yellowstone County,
MT.
13780........... Binghamton, NY....... 0.9137 0.8850 0.8562
Broome County, NY...
Tioga County, NY....
13820........... Birmingham-Hoover, AL 0.9375 0.9167 0.8959
Bibb County, AL.....
Blount County, AL...
Chilton County, AL..
Jefferson County, AL
St. Clair County, AL
Shelby County, AL...
Walker County, AL...
13900........... Bismarck, ND......... 0.8544 0.8059 0.7574
Burleigh County, ND.
Morton County, ND...
13980........... Blacksburg- 0.8772 0.8363 0.7954
Christiansburg-
Radford, VA.
Giles County, VA....
Montgomery County,
VA.
Pulaski County, VA..
Radford City, VA....
14020........... Bloomington, IN...... 0.9068 0.8758 0.8447
Greene County, IN...
Monroe County, IN...
Owen County, IN.....
14060........... Bloomington-Normal, 0.9445 0.9260 0.9075
IL.
McLean County, IL...
14260........... Boise City-Nampa, ID. 0.9431 0.9242 0.9052
Ada County, ID......
Boise County, ID....
Canyon County, ID...
Gem County, ID......
Owyhee County, ID...
14484........... Boston-Quincy, MA.... 1.0935 1.1246 1.1558
Norfolk County, MA..
Plymouth County, MA.
Suffolk County, MA..
14500........... Boulder, CO.......... 0.9840 0.9787 0.9734
Boulder County, CO..
14540........... Bowling Green, KY.... 0.8927 0.8569 0.8211
Edmonson County, KY.
Warren County, KY...
14740........... Bremerton-Silverdale, 1.0405 1.0540 1.0675
WA.
Kitsap County, WA...
14860........... Bridgeport-Stamford- 1.1555 1.2074 1.2592
Norwalk, CT.
Fairfield County, CT
15180........... Brownsville- 0.9882 0.9843 0.9804
Harlingen, TX.
Cameron County, TX..
15260........... Brunswick, GA........ 0.9587 0.9449 0.9311
Brantley County, GA.
Glynn County, GA....

[[Page 27910]]

McIntosh County, GA.
15380........... Buffalo-Niagara 0.9707 0.9609 0.9511
Falls, NY.
Erie County, NY.....
Niagara County, NY..
15500........... Burlington, NC....... 0.9343 0.9124 0.8905
Alamance County, NC.
15540........... Burlington-South 0.9646 0.9528 0.9410
Burlington, VT.
Chittenden County,
VT.
Franklin County, VT.
Grand Isle County,
VT.
15764........... Cambridge-Newton- 1.0703 1.0938 1.1172
Framingham, MA.
Middlesex County, MA
15804........... Camden, NJ........... 1.0310 1.0414 1.0517
Burlington County,
NJ.
Camden County, NJ...
Gloucester County,
NJ.
15940........... Canton-Massillon, OH. 0.9361 0.9148 0.8935
Carroll County, OH..
Stark County, OH....
15980........... Cape Coral-Fort 0.9614 0.9485 0.9356
Myers, FL.
Lee County, FL......
16180........... Carson City, NV...... 1.0140 1.0187 1.0234
Carson City, NV.....
16220........... Casper, WY........... 0.9416 0.9221 0.9026
Natrona County, WY..
16300........... Cedar Rapids, IA..... 0.9295 0.9060 0.8825
Benton County, IA...
Jones County, IA....
Linn County, IA.....
16580........... Champaign-Urbana, IL. 0.9756 0.9675 0.9594
Champaign County, IL
Ford County, IL.....
Piatt County, IL....
16620........... Charleston, WV....... 0.9067 0.8756 0.8445
Boone County, WV....
Clay County, WV.....
Kanawha County, WV..
Lincoln County, WV..
Putnam County, WV...
16700........... Charleston-North 0.9547 0.9396 0.9245
Charleston, SC.
Berkeley County, SC.
Charleston County,
SC.
Dorchester County,
SC.
16740........... Charlotte-Gastonia- 0.9850 0.9800 0.9750
Concord, NC-SC.
Anson County, NC....
Cabarrus County, NC.
Gaston County, NC...
Mecklenburg County,
NC.
Union County, NC....
York County, SC.....
16820........... Charlottesville, VA.. 1.0112 1.0150 1.0187
Albemarle County, VA
Fluvanna County, VA.
Greene County, VA...
Nelson County, VA...
Charlottesville
City, VA.
16860........... Chattanooga, TN-GA... 0.9453 0.9270 0.9088
Catoosa County, GA..
Dade County, GA.....
Walker County, GA...
Hamilton County, TN.
Marion County, TN...
Sequatchie County,
TN.
16940........... Cheyenne, WY......... 0.9265 0.9020 0.8775
Laramie County, WY..
16974........... Chicago-Naperville- 1.0474 1.0632 1.0790
Joliet, IL.
Cook County, IL.....
DeKalb County, IL...

[[Page 27911]]

DuPage County, IL...
Grundy County, IL...
Kane County, IL.....
Kendall County, IL..
McHenry County, IL..
Will County, IL.....
17020........... Chico, CA............ 1.0307 1.0409 1.0511
Butte County, CA....
17140........... Cincinnati- 0.9769 0.9692 0.9615
Middletown, OH-KY-IN.
Dearborn County, IN.
Franklin County, IN.
Ohio County, IN.....
Boone County, KY....
Bracken County, KY..
Campbell County, KY.
Gallatin County, KY.
Grant County, KY....
Kenton County, KY...
Pendleton County, KY
Brown County, OH....
Butler County, OH...
Clermont County, OH.
Hamilton County, OH.
Warren County, OH...
17300........... Clarksville, TN-KY... 0.8970 0.8627 0.8284
Christian County, KY
Trigg County, KY....
Montgomery County,
TN.
Stewart County, TN..
17420........... Cleveland, TN........ 0.8883 0.8511 0.8139
Bradley County, TN..
Polk County, TN.....
17460........... Cleveland-Elyria- 0.9528 0.9370 0.9213
Mentor, OH.
Cuyahoga County, OH.
Geauga County, OH...
Lake County, OH.....
Lorain County, OH...
Medina County, OH...
17660........... Coeur d'Alene, ID.... 0.9788 0.9718 0.9647
Kootenai County, ID.
17780........... College Station- 0.9340 0.9120 0.8900
Bryan, TX.
Brazos County, TX...
Burleson County, TX.
Robertson County, TX
17820........... Colorado Springs, CO. 0.9681 0.9574 0.9468
El Paso County, CO..
Teller County, CO...
17860........... Columbia, MO......... 0.9007 0.8676 0.8345
Boone County, MO....
Howard County, MO...
17900........... Columbia, SC......... 0.9434 0.9246 0.9057
Calhoun County, SC..
Fairfield County, SC
Kershaw County, SC..
Lexington County, SC
Richland County, SC.
Saluda County, SC...
17980........... Columbus, GA-AL...... 0.9136 0.8848 0.8560
Russell County, AL..
Chattahoochee
County, GA.
Harris County, GA...
Marion County, GA...
Muscogee County, GA.
18020........... Columbus, IN......... 0.9753 0.9670 0.9588
Bartholomew County,
IN.
18140........... Columbus, OH......... 0.9916 0.9888 0.9860
Delaware County, OH.
Fairfield County, OH

[[Page 27912]]

Franklin County, OH.
Licking County, OH..
Madison County, OH..
Morrow County, OH...
Pickaway County, OH.
Union County, OH....
18580........... Corpus Christi, TX... 0.9130 0.8840 0.8550
Aransas County, TX..
Nueces County, TX...
San Patricio County,
TX.
18700........... Corvallis, OR........ 1.0437 1.0583 1.0729
Benton County, OR...
19060........... Cumberland, MD-WV.... 0.9590 0.9454 0.9317
Allegany County, MD.
Mineral County, WV..
19124........... Dallas-Plano-Irving, 1.0137 1.0182 1.0228
TX.
Collin County, TX...
Dallas County, TX...
Delta County, TX....
Denton County, TX...
Ellis County, TX....
Hunt County, TX.....
Kaufman County, TX..
Rockwall County, TX.
19140........... Dalton, GA........... 0.9447 0.9263 0.9079
Murray County, GA...
Whitfield County, GA
19180........... Danville, IL......... 0.9417 0.9222 0.9028
Vermilion County, IL
19260........... Danville, VA......... 0.9093 0.8791 0.8489
Pittsylvania County,
VA.
Danville City, VA...
19340........... Davenport-Moline-Rock 0.9234 0.8979 0.8724
Island, IA-IL.
Henry County, IL....
Mercer County, IL...
Rock Island County,
IL.
Scott County, IA....
19380........... Dayton, OH........... 0.9438 0.9251 0.9064
Greene County, OH...
Miami County, OH....
Montgomery County,
OH.
Preble County, OH...
19460........... Decatur, AL.......... 0.9081 0.8775 0.8469
Lawrence County, AL.
Morgan County, AL...
19500........... Decatur, IL.......... 0.8840 0.8454 0.8067
Macon County, IL....
19660........... Deltona-Daytona Beach- 0.9579 0.9439 0.9299
Ormond Beach, FL.
Volusia County, FL..
19740........... Denver-Aurora, CO.... 1.0434 1.0578 1.0723
Adams County, CO....
Arapahoe County, CO.
Broomfield County,
CO.
Clear Creek County,
CO.
Denver County, CO...
Douglas County, CO..
Elbert County, CO...
Gilpin County, CO...
Jefferson County, CO
Park County, CO.....
19780........... Des Moines,-West Des 0.9801 0.9735 0.9669
Moines, IA.
Dallas County, IA...
Guthrie County, IA..
Madison County, IA..
Polk County, IA.....
Warren County, IA...
19804........... Detroit-Livonia- 1.0254 1.0339 1.0424
Dearborn, MI.
Wayne County, MI....

[[Page 27913]]

20020........... Dothan, AL........... 0.8633 0.8177 0.7721
Geneva County, AL...
Henry County, AL....
Houston County, AL..
20100........... Dover, DE............ 0.9866 0.9821 0.9776
Kent County, DE.....
20220........... Dubuque, IA.......... 0.9414 0.9219 0.9024
Dubuque County, IA..
20260........... Duluth, MN-WI........ 1.0128 1.0170 1.0213
Carlton County, MN..
St. Louis County, MN
Douglas County, WI..
20500........... Durham, NC........... 1.0146 1.0195 1.0244
Chatham County, NC..
Durham County, NC...
Orange County, NC...
Person County, NC...
20740........... Eau Claire, WI....... 0.9521 0.9361 0.9201
Chippewa County, WI.
Eau Claire County,
WI.
20764........... Edison, NJ........... 1.0749 1.0999 1.1249
Middlesex County, NJ
Monmouth County, NJ.
Ocean County, NJ....
Somerset County, NJ.
20940........... El Centro, CA........ 0.9344 0.9125 0.8906
Imperial County, CA.
21060........... Elizabethtown, KY.... 0.9281 0.9042 0.8802
Hardin County, KY...
Larue County, KY....
21140........... Elkhart-Goshen, IN... 0.9776 0.9702 0.9627
Elkhart County, IN..
21300........... Elmira, NY........... 0.8950 0.8600 0.8250
Chemung County, NY..
21340........... El Paso, TX.......... 0.9386 0.9182 0.8977
El Paso County, TX..
21500........... Erie, PA............. 0.9242 0.8990 0.8737
Erie County, PA.....
21604........... Essex County, MA..... 1.0323 1.0430 1.0538
Essex County, MA....
21660........... Eugene-Springfield, 1.0491 1.0654 1.0818
OR.
Lane County, OR.....
21780........... Evansville, IN-KY.... 0.9228 0.8970 0.8713
Gibson County, IN...
Posey County, IN....
Vanderburgh County,
IN.
Warrick County, IN..
Henderson County, KY
Webster County, KY..
21820........... Fairbanks, AK........ 1.0845 1.1126 1.1408
Fairbanks North Star
Borough, AK.
21940........... Fajardo, PR.......... 0.6492 0.5322 0.4153
Ceiba Municipio, PR.
Fajardo Municipio,
PR.
Luquillo Municipio,
PR.
22020........... Fargo, ND-MN......... 0.9092 0.8789 0.8486
Cass County, ND.....
Clay County, MN.....
22140........... Farmington, NM....... 0.9105 0.8807 0.8509
San Juan County, NM.
22180........... Fayetteville, NC..... 0.9650 0.9533 0.9416
Cumberland County,
NC.
Hoke County, NC.....
22220........... Fayetteville- 0.9197 0.8929 0.8661
Springdale-Rogers,
AR-MO.
Benton County, AR...
Madison County, AR..
Washington County,
AR.
McDonald County, MO.

[[Page 27914]]

22380........... Flagstaff, AZ........ 1.1255 1.1674 1.2092
Coconino County, AZ.
22420........... Flint, MI............ 1.0393 1.0524 1.0655
Genesee County, MI..
22500........... Florence, SC......... 0.9368 0.9158 0.8947
Darlington County,
SC.
Florence County, SC.
22520........... Florence-Muscle 0.8963 0.8618 0.8272
Shoals, AL.
Colbert County, AL..
Lauderdale County,
AL.
22540........... Fond du Lac, WI...... 0.9784 0.9712 0.9640
Fond du Lac County,
WI.
22660........... Fort Collins- 1.0073 1.0098 1.0122
Loveland, CO.
Larimer County, CO..
22744........... Fort Lauderdale- 1.0259 1.0346 1.0432
Pompano Beach-
Deerfield Beach, FL.
Broward County, FL..
22900........... Fort Smith, AR-OK.... 0.8938 0.8584 0.8230
Crawford County, AR.
Franklin County, AR.
Sebastian County, AR
Le Flore County, OK.
Sequoyah County, OK.
23020........... Fort Walton Beach- 0.9323 0.9098 0.8872
Crestview-Destin, FL.
Okaloosa County, FL.
23060........... Fort Wayne, IN....... 0.9876 0.9834 0.9793
Allen County, IN....
Wells County, IN....
Whitley County, IN..
23104........... Fort Worth-Arlington, 0.9692 0.9589 0.9486
TX.
Johnson County, TX..
Parker County, TX...
Tarrant County, TX..
Wise County, TX.....
23420........... Fresno, CA........... 1.0323 1.0430 1.0538
Fresno County, CA...
23460........... Gadsden, AL.......... 0.8763 0.8350 0.7938
Etowah County, AL...
23540........... Gainesville, FL...... 0.9633 0.9510 0.9388
Alachua County, FL..
Gilchrist County, FL
23580........... Gainesville, GA...... 0.9324 0.9099 0.8874
Hall County, GA.....
23844........... Gary, IN............. 0.9637 0.9516 0.9395
Jasper County, IN...
Lake County, IN.....
Newton County, IN...
Porter County, IN...
24020........... Glens Falls, NY...... 0.9135 0.8847 0.8559
Warren County, NY...
Washington County,
NY.
24140........... Goldsboro, NC........ 0.9265 0.9020 0.8775
Wayne County, NC....
24220........... Grand Forks, ND-MN... 0.8741 0.8321 0.7901
Polk County, MN.....
Grand Forks County,
ND.
24300........... Grand Junction, CO... 0.9730 0.9640 0.9550
Mesa County, CO.....
24340........... Grand Rapids-Wyoming, 0.9634 0.9512 0.9390
MI.
Barry County, MI....
Ionia County, MI....
Kent County, MI.....
Newaygo County, MI..
24500........... Great Falls, MT...... 0.9431 0.9242 0.9052
Cascade County, MT..
24540........... Greeley, CO.......... 0.9742 0.9656 0.9570
Weld County, CO.....
24580........... Green Bay, WI........ 0.9690 0.9586 0.9483
Brown County, WI....

[[Page 27915]]

Kewaunee County, WI.
Oconto County, WI...
24660........... Greensboro-High 0.9462 0.9283 0.9104
Point, NC.
Guilford County, NC.
Randolph County, NC.
Rockingham County,
NC.
24780........... Greenville, NC....... 0.9655 0.9540 0.9425
Greene County, NC...
Pitt County, NC.....
24860........... Greenville, SC....... 1.0016 1.0022 1.0027
Greenville County,
SC.
Laurens County, SC..
Pickens County, SC..
25020........... Guayama, PR.......... 0.5909 0.4545 0.3181
Arroyo Municipio, PR
Guayama Municipio,
PR.
Patillas Municipio,
PR.
25060........... Gulfport-Biloxi, MS.. 0.9357 0.9143 0.8929
Hancock County, MS..
Harrison County, MS.
Stone County, MS....
25180........... Hagerstown- 0.9693 0.9591 0.9489
Martinsburg, MD-WV.
Washington County,
MD.
Berkeley County, WV.
Morgan County, WV...
25260........... Hanford-Corcoran, CA. 1.0022 1.0029 1.0036
Kings County, CA....
25420........... Harrisburg-Carlisle, 0.9588 0.9450 0.9313
PA.
Cumberland County,
PA.
Dauphin County, PA..
Perry County, PA....
25500........... Harrisonburg, VA..... 0.9453 0.9270 0.9088
Rockingham County,
VA.
Harrisonburg City,
VA.
25540........... Hartford-West 1.0644 1.0858 1.1073
Hartford-East
Hartford, CT.
Hartford County, CT.
Litchfield County,
CT.
Middlesex County, CT
Tolland County, CT..
25620........... Hattiesburg, MS...... 0.8561 0.8081 0.7601
Forrest County, MS..
Lamar County, MS....
Perry County, MS....
25860........... Hickory-Lenoir- 0.9353 0.9137 0.8921
Morganton, NC.
Alexander County, NC
Burke County, NC....
Caldwell County, NC.
Catawba County, NC..
25980........... Hinesville-Fort 0.8597 0.8130 0.7662
Stewart, GA.
Liberty County, GA..
Long County, GA.....
26100........... Holland-Grand Haven, 0.9433 0.9244 0.9055
MI.
Ottawa County, MI...
26180........... Honolulu, HI......... 1.0728 1.0971 1.1214
Honolulu County, HI.
26300........... Hot Springs, AR...... 0.9403 0.9204 0.9005
Garland County, AR..
26380........... Houma-Bayou Cane- 0.8736 0.8315 0.7894
Thibodaux, LA.
Lafourche Parish, LA
Terrebonne Parish,
LA.
26420........... Houston-Sugar Land- 0.9998 0.9997 0.9996
Baytown, TX.
Austin County, TX...
Brazoria County, TX.
Chambers County, TX.
Fort Bend County, TX
Galveston County, TX
Harris County, TX...
Liberty County, TX..

[[Page 27916]]

Montgomery County,
TX.
San Jacinto County,
TX.
Waller County, TX...
26580........... Huntington-Ashland, 0.9686 0.9582 0.9477
WV-KY-OH.
Boyd County, KY.....
Greenup County, KY..
Lawrence County, OH.
Cabell County, WV...
Wayne County, WV....
26620........... Huntsville, AL....... 0.9488 0.9317 0.9146
Limestone County, AL
Madison County, AL..
26820........... Idaho Falls, ID...... 0.9652 0.9536 0.9420
Bonneville County,
ID.
Jefferson County, ID
26900........... Indianapolis-Carmel, 0.9952 0.9936 0.9920
IN.
Boone County, IN....
Brown County, IN....
Hamilton County, IN.
Hancock County, IN..
Hendricks County, IN
Johnson County, IN..
Marion County, IN...
Morgan County, IN...
Putnam County, IN...
Shelby County, IN...
26980........... Iowa City, IA........ 0.9848 0.9798 0.9747
Johnson County, IA..
Washington County,
IA.
27060........... Ithaca, NY........... 0.9876 0.9834 0.9793
Tompkins County, NY.
27100........... Jackson, MI.......... 0.9582 0.9443 0.9304
Jackson County, MI..
27140........... Jackson, MS.......... 0.8987 0.8649 0.8311
Copiah County, MS...
Hinds County, MS....
Madison County, MS..
Rankin County, MS...
Simpson County, MS..
27180........... Jackson, TN.......... 0.9378 0.9171 0.8964
Chester County, TN..
Madison County, TN..
27260........... Jacksonville, FL..... 0.9574 0.9432 0.9290
Baker County, FL....
Clay County, FL.....
Duval County, FL....
Nassau County, FL...
St. Johns County, FL
27340........... Jacksonville, NC..... 0.8942 0.8589 0.8236
Onslow County, NC...
27500........... Janesville, WI....... 0.9723 0.9630 0.9538
Rock County, WI.....
27620........... Jefferson City, MO... 0.9032 0.8710 0.8387
Callaway County, MO.
Cole County, MO.....
Moniteau County, MO.
Osage County, MO....
27740........... Johnson City, TN..... 0.8762 0.8350 0.7937
Carter County, TN...
Unicoi County, TN...
Washington County,
TN.
27780........... Johnstown, PA........ 0.9012 0.8683 0.8354
Cambria County, PA..
27860........... Jonesboro, AR........ 0.8747 0.8329 0.7911
Craighead County, AR
Poinsett County, AR.
27900........... Joplin, MO........... 0.9149 0.8866 0.8582
Jasper County, MO...

[[Page 27917]]

Newton County, MO...
28020........... Kalamazoo-Portage, MI 1.0229 1.0305 1.0381
Kalamazoo County, MI
Van Buren County, MI
28100........... Kankakee-Bradley, IL. 1.0433 1.0577 1.0721
Kankakee County, IL.
28140........... Kansas City, MO-KS... 0.9686 0.9581 0.9476
Franklin County, KS.
Johnson County, KS..
Leavenworth County,
KS.
Linn County, KS.....
Miami County, KS....
Wyandotte County, KS
Bates County, MO....
Caldwell County, MO.
Cass County, MO.....
Clay County, MO.....
Clinton County, MO..
Jackson County, MO..
Lafayette County, MO
Platte County, MO...
Ray County, MO......
28420........... Kennewick-Richland- 1.0371 1.0495 1.0619
Pasco, WA.
Benton County, WA...
Franklin County, WA.
28660........... Killeen-Temple-Fort 0.9116 0.8821 0.8526
Hood, TX.
Bell County, TX.....
Coryell County, TX..
Lampasas County, TX.
28700........... Kingsport-Bristol- 0.8832 0.8443 0.8054
Bristol, TN-VA.
Hawkins County, TN..
Sullivan County, TN.
Bristol City, VA....
Scott County, VA....
Washington County,
VA.
28740........... Kingston, NY......... 0.9553 0.9404 0.9255
Ulster County, NY...
28940........... Knoxville, TN........ 0.9065 0.8753 0.8441
Anderson County, TN.
Blount County, TN...
Knox County, TN.....
Loudon County, TN...
Union County, TN....
29020........... Kokomo, IN........... 0.9705 0.9606 0.9508
Howard County, IN...
Tipton County, IN...
29100........... La Crosse, WI-MN..... 0.9738 0.9651 0.9564
Houston County, MN..
La Crosse County, WI
29140........... Lafayette, IN........ 0.9242 0.8989 0.8736
Benton County, IN...
Carroll County, IN..
Tippecanoe County,
IN.
29180........... Lafayette, LA........ 0.9057 0.8742 0.8428
Lafayette Parish, LA
St. Martin Parish,
LA.
29340........... Lake Charles, LA..... 0.8700 0.8266 0.7833
Calcasieu Parish, LA
Cameron Parish, LA..
29404........... Lake County-Kenosha 1.0257 1.0343 1.0429
County, IL-WI.
Lake County, IL.....
Kenosha County, WI..
29460........... Lakeland, FL......... 0.9347 0.9130 0.8912
Polk County, FL.....
29540........... Lancaster, PA........ 0.9816 0.9755 0.9694
Lancaster County, PA
29620........... Lansing-East Lansing, 0.9876 0.9835 0.9794
MI.
Clinton County, MI..

[[Page 27918]]

Eaton County, MI....
Ingham County, MI...
29700........... Laredo, TX........... 0.8841 0.8454 0.8068
Webb County, TX.....
29740........... Las Cruces, NM....... 0.9080 0.8774 0.8467
Dona Ana County, NM.
29820........... Las Vegas-Paradise, 1.0862 1.1150 1.1437
NV.
Clark County, NV....
29940........... Lawrence, KS......... 0.9122 0.8830 0.8537
Douglas County, KS..
30020........... Lawton, OK........... 0.8723 0.8298 0.7872
Comanche County, OK.
30140........... Lebanon, PA.......... 0.9075 0.8767 0.8459
Lebanon County, PA..
30300........... Lewiston, ID-WA...... 0.9932 0.9909 0.9886
Nez Perce County, ID
Asotin County, WA...
30340........... Lewiston-Auburn, ME.. 0.9599 0.9465 0.9331
Androscoggin County,
ME.
30460........... Lexington-Fayette, KY 0.9445 0.9260 0.9075
Bourbon County, KY..
Clark County, KY....
Fayette County, KY..
Jessamine County, KY
Scott County, KY....
Woodford County, KY.
30620........... Lima, OH............. 0.9535 0.9380 0.9225
Allen County, OH....
30700........... Lincoln, NE1.0128.... 1.0171 1.0214
Lancaster County, NE
Seward County, NE...
30780........... Little Rock-North 0.9248 0.8998 0.8747
Little Rock, AR.
Faulkner County, AR.
Grant County, AR....
Lonoke County, AR...
Perry County, AR....
Pulaski County, AR..
Saline County, AR...
30860........... Logan, UT-ID......... 0.9498 0.9331 0.9164
Franklin County, ID.
Cache County, UT....
30980........... Longview, TX......... 0.9238 0.8984 0.8730
Gregg County, TX....
Rusk County, TX.....
Upshur County, TX...
31020........... Longview, WA......... 0.9747 0.9663 0.9579
Cowlitz County, WA..
31084........... Los Angeles-Long 1.1070 1.1426 1.1783
Beach-Glendale, CA.
Los Angeles County,
CA.
31140........... Louisville-Jefferson 0.9551 0.9401 0.9251
County, KY-IN.
Clark County, IN....
Floyd County, IN....
Harrison County, IN.
Washington County,
IN.
Bullitt County, KY..
Henry County, KY....
Jefferson County, KY
Meade County, KY....
Nelson County, KY...
Oldham County, KY...
Shelby County, KY...
Spencer County, KY..
Trimble County, KY..
31180........... Lubbock, TX.......... 0.9270 0.9026 0.8783
Crosby County, TX...
Lubbock County, TX..
31340........... Lynchburg, VA........ 0.9215 0.8953 0.8691
Amherst County, VA..

[[Page 27919]]

Appomattox County,
VA.
Bedford County, VA..
Campbell County, VA.
Bedford City, VA....
Lynchburg City, VA..
31420........... Macon, GA............ 0.9666 0.9554 0.9443
Bibb County, GA.....
Crawford County, GA.
Jones County, GA....
Monroe County, GA...
Twiggs County, GA...
31460........... Madera, CA........... 0.9228 0.8970 0.8713
Madera County, CA...
31540........... Madison, WI.......... 1.0395 1.0527 1.0659
Columbia County, WI.
Dane County, WI.....
Iowa County, WI.....
31700........... Manchester-Nashua, NH 1.0212 1.0283 1.0354
Hillsborough County,
NH.
Merrimack County, NH
31900........... Mansfield, OH........ 0.9935 0.9913 0.9891
Richland County, OH.
32420........... Mayag[uuml]ez, PR.... 0.6412 0.5216 0.4020
Hormigueros
Municipio, PR.
Mayag[uuml]ez
Municipio, PR.
32580........... McAllen-Edinburg- 0.9360 0.9147 0.8934
Mission, TX.
Hidalgo County, TX..
32780........... Medford, OR.......... 1.0135 1.0180 1.0225
Jackson County, OR..
32820........... Memphis, TN-MS-AR.... 0.9638 0.9518 0.9397
Crittenden County,
AR.
DeSoto County, MS...
Marshall County, MS.
Tate County, MS.....
Tunica County, MS...
Fayette County, TN..
Shelby County, TN...
Tipton County, TN...
32900........... Merced, CA........... 1.0665 1.0887 1.1109
Merced County, CA...
33124........... Miami-Miami Beach- 0.9850 0.9800 0.9750
Kendall, FL.
Miami-Dade County,
FL.
33140........... Michigan City-La 0.9639 0.9519 0.9399
Porte, IN.
LaPorte County, IN..
33260........... Midland, TX.......... 0.9708 0.9611 0.9514
Midland County, TX..
33340........... Milwaukee-Waukesha- 1.0088 1.0117 1.0146
West Allis, WI.
Milwaukee County, WI
Ozaukee County, WI..
Washington County,
WI.
Waukesha County, WI.
33460........... Minneapolis-St. Paul- 1.0645 1.0860 1.1075
Bloomington, MN-WI.
Anoka County, MN....
Carver County, MN...
Chisago County, MN..
Dakota County, MN...
Hennepin County, MN.
Isanti County, MN...
Ramsey County, MN...
Scott County, MN....
Sherburne County, MN
Washington County,
MN.
Wright County, MN...
Pierce County, WI...
St. Croix County, WI
33540........... Missoula, MT......... 0.9684 0.9578 0.9473
Missoula County, MT.
33660........... Mobile, AL........... 0.8735 0.8313 0.7891

[[Page 27920]]

Mobile County, AL...
33700........... Modesto, CA.......... 1.1131 1.1508 1.1885
Stanislaus County,
CA.
33740........... Monroe, LA........... 0.8819 0.8425 0.8031
Ouachita Parish, LA.
Union Parish, LA....
33780........... Monroe, MI........... 0.9681 0.9574 0.9468
Monroe County, MI...
33860........... Montgomery, AL....... 0.9171 0.8894 0.8618
Autauga County, AL..
Elmore County, AL...
Lowndes County, AL..
Montgomery County,
AL.
34060........... Morgantown, WV....... 0.9052 0.8736 0.8420
Monongalia County,
WV.
Preston County, WV..
34100........... Morristown, TN....... 0.8777 0.8369 0.7961
Grainger County, TN.
Hamblen County, TN..
Jefferson County, TN
34580........... Mount Vernon- 1.0272 1.0363 1.0454
Anacortes, WA.
Skagit County, WA...
34620........... Muncie, IN........... 0.9358 0.9144 0.8930
Delaware County, IN.
34740........... Muskegon-Norton 0.9798 0.9731 0.9664
Shores, MI.
Muskegon County, MI.
34820........... Myrtle Beach-Conway- 0.9360 0.9147 0.8934
North Myrtle Beach,
SC.
Horry County, SC 1.1586 1.2114 1.2643
34900 Napa, CA.
Napa County, CA.....
34940........... Naples-Marco Island, 1.0083 1.0111 1.0139
FL.
Collier County, FL..
34980........... Nashville-Davidson-- 0.9874 0.9832 0.9790
Murfreesboro, TN.
Cannon County, TN...
Cheatham County, TN.
Davidson County, TN.
Dickson County, TN..
Hickman County, TN..
Macon County, TN....
Robertson County, TN
Rutherford County,
TN.
Smith County, TN....
Sumner County, TN...
Trousdale County, TN
Williamson County,
TN.
Wilson County, TN...
35004........... Nassau-Suffolk, NY... 1.1631 1.2175 1.2719
Nassau County, NY...
Suffolk County, NY..
35084........... Newark-Union, NJ-PA.. 1.1130 1.1506 1.1883
Essex County, NJ....
Hunterdon County, NJ
Morris County, NJ...
Sussex County, NJ...
Union County, NJ....
Pike County, PA.....
35300........... New Haven-Milford, CT 1.1132 1.1510 1.1887
New Haven County, CT
35380........... New Orleans-Metairie- 0.9397 0.9196 0.8995
Kenner, LA.
Jefferson Parish, LA
Orleans Parish, LA..
Plaquemines Parish,
LA.
St. Bernard Parish,
LA.
St. Charles Parish,
LA.
St. John the Baptist
Parish, LA.
St. Tammany Parish,
LA.
35644........... New York-White Plains- 1.1913 1.2550 1.3188
Wayne, NY-NJ.
Bergen County, NJ...
Hudson County, NJ...

[[Page 27921]]

Passaic County, NJ..
Bronx County, NY....
Kings County, NY....
New York County, NY.
Putnam County, NY...
Queens County, NY...
Richmond County, NY.
Rockland County, NY.
Westchester County,
NY.
35660........... Niles-Benton Harbor, 0.9327 0.9103 0.8879
MI.
Berrien County, MI..
35980........... Norwich-New London, 1.0807 1.1076 1.1345
CT.
New London County,
CT.
36084........... Oakland-Fremont- 1.3208 1.4277 1.5346
Hayward, CA.
Alameda County, CA..
Contra Costa County,
CA.
36100........... Ocala, FL............ 0.9355 0.9140 0.8925
Marion County, FL...
36140........... Ocean City, NJ....... 1.0607 1.0809 1.1011
Cape May County, NJ.
36220........... Odessa, TX........... 0.9930 0.9907 0.9884
Ector County, TX....
36260........... Ogden-Clearfield, UT. 0.9417 0.9223 0.9029
Davis County, UT....
Morgan County, UT...
Weber County, UT....
36420........... Oklahoma City, OK.... 0.9419 0.9225 0.9031
Canadian County, OK.
Cleveland County, OK
Grady County, OK....
Lincoln County, OK..
Logan County, OK....
McClain County, OK..
Oklahoma County, OK.
36500........... Olympia, WA.......... 1.0556 1.0742 1.0927
Thurston County, WA.
36540........... Omaha-Council Bluffs, 0.9736 0.9648 0.9560
NE-IA.
Harrison County, IA.
Mills County, IA....
Pottawattamie
County, IA.
Cass County, NE.....
Douglas County, NE..
Sarpy County, NE....
Saunders County, NE.
Washington County,
NE.
36740........... Orlando-Kissimmee, FL 0.9678 0.9571 0.9464
Lake County, FL.....
Orange County, FL...
Osceola County, FL..
Seminole County, FL.
36780........... Oshkosh-Neenah, WI... 0.9510 0.9346 0.9183
Winnebago County, WI
36980........... Owensboro, KY........ 0.9268 0.9024 0.8780
Daviess County, KY..
Hancock County, KY..
McLean County, KY...
37100........... Oxnard-Thousand Oaks- 1.0973 1.1298 1.1622
Ventura, CA.
Ventura County, CA..
37340........... Palm Bay-Melbourne- 0.9903 0.9871 0.9839
Titusville, FL.
Brevard County, FL..
37460........... Panama City-Lynn 0.8803 0.8404 0.8005
Haven, FL.
Bay County, FL......
37620........... Parkersburg-Marietta- 0.8962 0.8616 0.8270
Vienna, WV-OH.
Washington County,
OH.
Pleasants County, WV
Wirt County, WV.....
Wood County, WV.....
37700........... Pascagoula, MS....... 0.8894 0.8525 0.8156

[[Page 27922]]

George County, MS...
Jackson County, MS..
37860........... Pensacola-Ferry Pass- 0.8858 0.8477 0.8096
Brent, FL.
Escambia County, FL.
Santa Rosa County,
FL.
37900........... Peoria, IL........... 0.9322 0.9096 0.8870
Marshall County, IL.
Peoria County, IL...
Stark County, IL....
Tazewell County, IL.
Woodford County, IL.
37964........... Philadelphia, PA..... 1.0623 1.0830 1.1038
Bucks County, PA....
Chester County, PA..
Delaware County, PA.
Montgomery County,
PA.
Philadelphia County,
PA.
38060........... Phoenix-Mesa- 1.0076 1.0102 1.0127
Scottsdale, AZ.
Maricopa County, AZ.
Pinal County, AZ....
38220........... Pine Bluff, AR....... 0.9208 0.8944 0.8680
Cleveland County, AR
Jefferson County, AR
Lincoln County, AR..
38300........... Pittsburgh, PA....... 0.9307 0.9076 0.8845
Allegheny County, PA
Armstrong County, PA
Beaver County, PA...
Butler County, PA...
Fayette County, PA..
Washington County,
PA.
Westmoreland County,
PA.
38340........... Pittsfield, MA....... 1.0109 1.0145 1.0181
Berkshire County, MA
38540........... Pocatello, ID........ 0.9611 0.9481 0.9351
Bannock County, ID..
Power County, ID....
38660........... Ponce, PR............ 0.6963 0.5951 0.4939
Juana D[iacute]az
Municipio, PR.
Ponce Municipio, PR.
Villalba Municipio,
PR.
38860........... Portland-South 1.0229 1.0306 1.0382
Portland-Biddeford,
ME.
Cumberland County,
ME.
Sagadahoc County, ME
York County, ME.....
38900........... Portland-Vancouver- 1.0760 1.1013 1.1266
Beaverton, OR-WA.
Clackamas County, OR
Columbia County, OR.
Multnomah County, OR
Washington County,
OR.
Yamhill County, OR..
Clark County, WA....
Skamania County, WA.
38940........... Port St. Lucie-Fort 1.0074 1.0098 1.0123
Pierce, FL.
Martin County, FL...
St. Lucie County, FL
39100........... Poughkeepsie-Newburgh- 1.0535 1.0713 1.0891 NY
Middletown,.
Dutchess County, NY.
Orange County, NY...
39140........... Prescott, AZ......... 0.9921 0.9895 0.9869
Yavapai County, AZ..
39300........... Providence-New 1.0580 1.0773 1.0966
Bedford-Fall River,
RI-MA.
Bristol County, MA..
Bristol County, RI..
Kent County, RI.....
Newport County, RI..
Providence County,
RI.

[[Page 27923]]

Washington County,
RI.
39340........... Provo-Orem, UT....... 0.9700 0.9600 0.9500
Juab County, UT.....
Utah County, UT.....
39380........... Pueblo, CO........... 0.9174 0.8898 0.8623
Pueblo County, CO...
39460........... Punta Gorda, FL...... 0.9553 0.9404 0.9255
Charlotte County, FL
39540........... Racine, WI........... 0.9398 0.9198 0.8997
Racine County, WI...
39580........... Raleigh-Cary, NC..... 0.9815 0.9753 0.9691
Franklin County, NC.
Johnston County, NC.
Wake County, NC.....
39660........... Rapid City, SD....... 0.9392 0.9190 0.8987
Meade County, SD....
Pennington County,
SD.
39740........... Reading, PA.......... 0.9812 0.9749 0.9686
Berks County, PA....
39820........... Redding, CA.......... 1.1322 1.1762 1.2203
Shasta County, CA...
39900........... Reno-Sparks, NV...... 1.0589 1.0786 1.0982
Storey County, NV...
Washoe County, NV...
40060........... Richmond, VA......... 0.9597 0.9462 0.9328
Amelia County, VA...
Caroline County, VA.
Charles City County,
VA.
Chesterfield County,
VA.
Cumberland County,
VA.
Dinwiddie County, VA
Goochland County, VA
Hanover County, VA..
Henrico County, VA..
King and Queen
County, VA.
King William County,
VA.
Louisa County, VA...
New Kent County, VA.
Powhatan County, VA.
Prince George
County, VA.
Sussex County, VA...
Colonial Heights
City, VA.
Hopewell City, VA...
Petersburg City, VA.
Richmond City, VA...
40140........... Riverside-San 1.0616 1.0822 1.1027
Bernardino-Ontario,
CA.
Riverside County, CA
San Bernardino
County, CA.
40220........... Roanoke, VA.......... 0.9024 0.8699 0.8374
Botetourt County, VA
Craig County, VA....
Franklin County, VA.
Roanoke County, VA..
Roanoke City, VA....
Salem City, VA......
40340........... Rochester, MN........ 1.0679 1.0905 1.1131
Dodge County, MN....
Olmsted County, MN..
Wabasha County, MN..
40380........... Rochester, NY........ 0.9473 0.9297 0.9121
Livingston County,
NY.
Monroe County, NY...
Ontario County, NY..
Orleans County, NY..
Wayne County, NY....
40420........... Rockford, IL......... 0.9990 0.9987 0.9984
Boone County, IL....
Winnebago County, IL

[[Page 27924]]

40484........... Rockingham County- 1.0224 1.0299 1.0374
Strafford County, NH.
Rockingham County,
NH.
Strafford County, NH
40580........... Rocky Mount, NC...... 0.9349 0.9132 0.8915
Edgecombe County, NC
Nash County, NC.....
40660........... Rome, GA............. 0.9648 0.9531 0.9414
Floyd County, GA....
40900........... Sacramento--Arden- 1.1781 1.2375 1.2969
Arcade--Roseville,
CA.
El Dorado County, CA
Placer County, CA...
Sacramento County,
CA.
Yolo County, CA.....
40980........... Saginaw-Saginaw 0.9453 0.9270 0.9088
Township North, MI.
Saginaw County, MI..
41060........... St. Cloud, MN........ 0.9979 0.9972 0.9965
Benton County, MN...
Stearns County, MN..
41100........... St. George, UT....... 0.9635 0.9514 0.9392
Washington County,
UT.
41140........... St. Joseph, MO-KS.... 0.9711 0.9615 0.9519
Doniphan County, KS.
Andrew County, MO...
Buchanan County, MO.
DeKalb County, MO...
41180........... St. Louis, MO-IL..... 0.9372 0.9163 0.8954
Bond County, IL.....
Calhoun County, IL..
Clinton County, IL..
Jersey County, IL...
Macoupin County, IL.
Madison County, IL..
Monroe County, IL...
St. Clair County, IL
Crawford County, MO.
Franklin County, MO.
Jefferson County, MO
Lincoln County, MO..
St. Charles County,
MO.
St. Louis County, MO
Warren County, MO...
Washington County,
MO.
St. Louis City, MO..
41420........... Salem, OR............ 1.0265 1.0354 1.0442
Marion County, OR...
Polk County, OR.....
41500........... Salinas, CA.......... 1.2477 1.3302 1.4128
Monterey County, CA.
41540........... Salisbury, MD........ 0.9438 0.9251 0.9064
Somerset County, MD.
Wicomico County, MD.
41620........... Salt Lake City, UT... 0.9653 0.9537 0.9421
Salt Lake County, UT
Summit County, UT...
Tooele County, UT...
41660........... San Angelo, TX....... 0.8963 0.8617 0.8271
Irion County, TX....
Tom Green County, TX
41700........... San Antonio, TX...... 0.9388 0.9184 0.8980
Atascosa County, TX.
Bandera County, TX..
Bexar County, TX....
Comal County, TX....
Guadalupe County, TX
Kendall County, TX..
Medina County, TX...
Wilson County, TX...
41740........... San Diego-Carlsbad- 1.0848 1.1130 1.1413
San Marcos, CA.

[[Page 27925]]

San Diego County, CA
41780........... Sandusky, OH......... 0.9411 0.9215 0.9019
Erie County, OH.....
41884........... San Francisco-San 1.2996 1.3995 1.4994
Mateo-Redwood City,
CA.
Marin County, CA....
San Francisco
County, CA.
San Mateo County, CA
41900........... San Germ[aacute]n- 0.6790 0.5720 0.4650
Cabo Rojo, PR.
Cabo Rojo Municipio,
PR.
Lajas Municipio, PR.
Sabana Grande
Municipio, PR.
San Germ[aacute]n
Municipio, PR.
41940........... San Jose-Sunnyvale- 1.3059 1.4079 1.5099
Santa Clara, CA.
San Benito County,
CA.
Santa Clara County,
CA.
41980........... San Juan-Caguas- 0.6773 0.5697 0.4621
Guaynabo, PR.
Aguas Buenas
Municipio, PR.
Aibonito Municipio,
PR.
Arecibo Municipio,
PR.
Barceloneta
Municipio, PR.
Barranquitas
Municipio, PR.
Bayam[oacute]n
Municipio, PR.
Caguas Municipio, PR
Camuy Municipio, PR.
Can[oacute]vanas
Municipio, PR.
Carolina Municipio,
PR.
Cata[ntilde]o
Municipio, PR.
Cayey Municipio, PR.
Ciales Municipio, PR
Cidra Municipio, PR.
Comer[iacute]o
Municipio, PR.
Corozal Municipio,
PR.
Dorado Municipio, PR
Florida Municipio,
PR.
Guaynabo Municipio,
PR.
Gurabo Municipio, PR
Hatillo Municipio,
PR.
Humacao Municipio,
PR.
Juncos Municipio, PR
Las Piedras
Municipio, PR.
Lo[iacute]za
Municipio, PR.
Manat[iacute]
Municipio, PR.
Maunabo Municipio,
PR.
Morovis Municipio,
PR.
Naguabo Municipio,
PR.
Naranjito Municipio,
PR.
Orocovis Municipio,
PR.
Quebradillas
Municipio, PR.
R[iacute]o Grande
Municipio, PR.
San Juan Municipio,
PR.
San Lorenzo
Municipio, PR.
Toa Alta Municipio,
PR.
Toa Baja Municipio,
PR.
Trujillo Alto
Municipio, PR.
Vega Alta Municipio,
PR.
Vega Baja Municipio,
PR.
Yabucoa Municipio,
PR.
42020........... San Luis Obispo-Paso 1.0809 1.1079 1.1349
Robles, CA.
San Luis Obispo
County, CA.
42044........... Santa Ana-Anaheim- 1.0935 1.1247 1.1559
Irvine, CA.
Orange County, CA...
42060........... Santa Barbara-Santa 1.1016 1.1355 1.1694
Maria, CA.
Santa Barbara
County, CA.
42100........... Santa Cruz- 1.3100 1.4133 1.5166
Watsonville, CA.
Santa Cruz County,
CA.
42140........... Santa Fe, NM......... 1.0552 1.0736 1.0920
Santa Fe County, NM.
42220........... Santa Rosa-Petaluma, 1.2096 1.2794 1.3493
CA.

[[Page 27926]]

Sonoma County, CA...
42260........... Sarasota-Bradenton- 0.9783 0.9711 0.9639
Venice, FL.
Manatee County, FL..
Sarasota County, FL.
42340........... Savannah, GA......... 0.9677 0.9569 0.9461
Bryan County, GA....
Chatham County, GA..
Effingham County, GA
42540........... Scranton--Wilkes- 0.9124 0.8832 0.8540
Barre, PA.
Lackawanna County,
PA.
Luzerne County, PA..
Wyoming County, PA..
42644........... Seattle-Bellevue- 1.0946 1.1262 1.1577
Everett, WA.
King County, WA.....
Snohomish County, WA
42680........... Sebastian-Vero Beach, 0.9660 0.9547 0.9434
FL.
Indian River County,
FL.
43100........... Sheboygan, WI........ 0.9347 0.9129 0.8911
Sheboygan County, WI
43300........... Sherman-Denison, TX.. 0.9704 0.9606 0.9507
Grayson County, TX..
43340........... Shreveport-Bossier 0.9256 0.9008 0.8760
City, LA.
Bossier Parish, LA..
Caddo Parish, LA....
De Soto Parish, LA..
43580........... Sioux City, IA-NE-SD. 0.9629 0.9505 0.9381
Woodbury County, IA.
Dakota County, NE...
Dixon County, NE....
Union County, SD....
43620........... Sioux Falls, SD...... 0.9781 0.9708 0.9635
Lincoln County, SD..
McCook County, SD...
Minnehaha County, SD
Turner County, SD...
43780........... South Bend-Mishawaka, 0.9873 0.9830 0.9788
IN-MI.
St. Joseph County,
IN.
Cass County, MI.....
43900........... Spartanburg, SC...... 0.9503 0.9338 0.9172
Spartanburg County,
SC.
44060........... Spokane, WA.......... 1.0543 1.0724 1.0905
Spokane County, WA..
44100........... Springfield, IL...... 0.9275 0.9034 0.8792
Menard County, IL...
Sangamon County, IL.
44140........... Springfield, MA...... 1.0149 1.0198 1.0248
Franklin County, MA.
Hampden County, MA..
Hampshire County, MA
44180........... Springfield, MO...... 0.8942 0.8590 0.8237
Christian County, MO
Dallas County, MO...
Greene County, MO...
Polk County, MO.....
Webster County, MO..
44220........... Springfield, OH...... 0.9038 0.8717 0.8396
Clark County, OH....
44300........... State College, PA.... 0.9014 0.8685 0.8356
Centre County, PA...
44700........... Stockton, CA......... 1.0784 1.1046 1.1307
San Joaquin County,
CA.
44940........... Sumter, SC........... 0.9026 0.8702 0.8377
Sumter County, SC...
45060........... Syracuse, NY......... 0.9744 0.9659 0.9574
Madison County, NY..
Onondaga County, NY.
Oswego County, NY...
45104........... Tacoma, WA........... 1.0445 1.0594 1.0742

[[Page 27927]]

Pierce County, WA...
45220........... Tallahassee, FL...... 0.9213 0.8950 0.8688
Gadsden County, FL..
Jefferson County, FL
Leon County, FL.....
Wakulla County, FL..
45300........... Tampa-St. Petersburg- 0.9540 0.9386 0.9233
Clearwater, FL.
Hernando County, FL.
Hillsborough County,
FL.
Pasco County, FL....
Pinellas County, FL.
45460........... Terre Haute, IN...... 0.8982 0.8643 0.8304
Clay County, IN.....
Sullivan County, IN.
Vermillion County,
IN.
Vigo County, IN.....
45500........... Texarkana, TX- 0.8970 0.8626 0.8283
Texarkana, AR.
Miller County, AR...
Bowie County, TX....
45780........... Toledo, OH........... 0.9744 0.9659 0.9574
Fulton County, OH...
Lucas County, OH....
Ottawa County, OH...
Wood County, OH.....
45820........... Topeka, KS........... 0.9352 0.9136 0.8920
Jackson County, KS..
Jefferson County, KS
Osage County, KS....
Shawnee County, KS..
Wabaunsee County, KS
45940........... Trenton-Ewing, NJ.... 1.0500 1.0667 1.0834
Mercer County, NJ...
46060........... Tucson, AZ........... 0.9404 0.9206 0.9007
Pima County, AZ.....
46140........... Tulsa, OK............ 0.9126 0.8834 0.8543
Creek County, OK....
Okmulgee County, OK.
Osage County, OK....
Pawnee County, OK...
Rogers County, OK...
Tulsa County, OK....
Wagoner County, OK..
46220........... Tuscaloosa, AL....... 0.9187 0.8916 0.8645
Greene County, AL...
Hale County, AL.....
Tuscaloosa County,
AL.
46340........... Tyler, TX............ 0.9501 0.9334 0.9168
Smith County, TX....
46540........... Utica-Rome, NY....... 0.9015 0.8686 0.8358
Herkimer County, NY.
Oneida County, NY...
46660........... Valdosta, GA......... 0.9320 0.9093 0.8866
Brooks County, GA...
Echols County, GA...
Lanier County, GA...
Lowndes County, GA..
46700........... Vallejo-Fairfield, CA 1.2962 1.3949 1.4936
Solano County, CA...
47020........... Victoria, TX......... 0.8896 0.8528 0.8160
Calhoun County, TX..
Goliad County, TX...
Victoria County, TX.
47220........... Vineland-Millville- 0.9896 0.9862 0.9827
Bridgeton, NJ.
Cumberland County,
NJ.
47260........... Virginia Beach- 0.9279 0.9039 0.8799
Norfolk-Newport
News, VA-NC.
Currituck County, NC
Gloucester County,
VA.
Isle of Wight
County, VA.

[[Page 27928]]

James City County,
VA.
Mathews County, VA..
Surry County, VA....
York County, VA.....
Chesapeake City, VA.
Hampton City, VA....
Newport News City,
VA.
Norfolk City, VA....
Poquoson City, VA...
Portsmouth City, VA.
Suffolk City, VA....
Virginia Beach City,
VA.
Williamsburg City,
VA.
47300........... Visalia-Porterville, 1.0074 1.0098 1.0123
CA.
Tulare County, CA...
47380........... Waco, TX............. 0.9111 0.8814 0.8518
McLennan County, TX.
47580........... Warner Robins, GA.... 0.9187 0.8916 0.8645
Houston County, GA..
47644........... Warren-Troy- 0.9923 0.9897 0.9871
Farmington Hills, MI.
Lapeer County, MI...
Livingston County,
MI.
Macomb County, MI...
Oakland County, MI..
St. Clair County, MI
47894........... Washington-Arlington- 1.0556 1.0741 1.0926
Alexandria, DC-VA-MD-
WV.
District of
Columbia, DC.
Calvert County, MD..
Charles County, MD..
Prince George's
County, MD.
Arlington County, VA
Clarke County, VA...
Fairfax County, VA..
Fauquier County, VA.
Loudoun County, VA..
Prince William
County, VA.
Spotsylvania County,
VA.
Stafford County, VA.
Warren County, VA...
Alexandria City, VA.
Fairfax City, VA....
Falls Church City,
VA.
Fredericksburg City,
VA.
Manassas City, VA...
Manassas Park City,
VA.
Jefferson County, WV
47940........... Waterloo-Cedar Falls, 0.9134 0.8846 0.8557
IA.
Black Hawk County,
IA.
Bremer County, IA...
Grundy County, IA...
48140........... Wausau, WI........... 0.9754 0.9672 0.9590
Marathon County, WI.
48260........... Weirton-Steubenville, 0.8691 0.8255 0.7819
WV-OH.
Jefferson County, OH
Brooke County, WV...
Hancock County, WV..
48300........... Wenatchee, WA........ 1.0042 1.0056 1.0070
Chelan County, WA...
Douglas County, WA..
48424........... West Palm Beach-Boca 1.0040 1.0054 1.0067
Raton-Boynton Beach,
FL.
Palm Beach County,
FL.
48540........... Wheeling, WV-OH...... 0.8297 0.7729 0.7161
Belmont County, OH..
Marshall County, WV.
Ohio County, WV.....
48620........... Wichita, KS.......... 0.9492 0.9322 0.9153
Butler County, KS...
Harvey County, KS...

[[Page 27929]]

Sedgwick County, KS.
Sumner County, KS...
48660........... Wichita Falls, TX.... 0.8971 0.8628 0.8285
Archer County, TX...
Clay County, TX.....
Wichita County, TX..
48700........... Williamsport, PA..... 0.9018 0.8691 0.8364
Lycoming County, PA.
48864........... Wilmington, DE-MD-NJ. 1.0283 1.0377 1.0471
New Castle County,
DE.
Cecil County, MD....
Salem County, NJ....
48900........... Wilmington, NC....... 0.9749 0.9666 0.9582
Brunswick County, NC
New Hanover County,
NC.
Pender County, NC...
49020........... Winchester, VA-WV.... 1.0128 1.0171 1.0214
Frederick County, VA
Winchester City, VA.
Hampshire County, WV
49180........... Winston-Salem, NC.... 0.9366 0.9155 0.8944
Davie County, NC....
Forsyth County, NC..
Stokes County, NC...
Yadkin County, NC...
49340........... Worcester, MA........ 1.0617 1.0822 1.1028
Worcester County, MA
49420........... Yakima, WA........... 1.0093 1.0124 1.0155
Yakima County, WA...
49500........... Yauco, PR............ 0.6645 0.5526 0.4408
Gu[aacute]nica
Municipio, PR.
Guayanilla
Municipio, PR.
Pe[ntilde]uelas
Municipio, PR.
Yauco Municipio, PR.
49620........... York-Hanover, PA..... 0.9608 0.9478 0.9347
York County, PA.....
49660........... Youngstown-Warren- 0.9162 0.8882 0.8603
Boardman, OH-PA.
Mahoning County, OH.
Trumbull County, OH.
Mercer County, PA...
49700........... Yuba City, CA........ 1.0553 1.0737 1.0921
Sutter County, CA...
Yuba County, CA.....
49740........... Yuma, AZ............. 0.9476 0.9301 0.9126
Yuma County, AZ.....
------------------------------------------------------------------------
\1\ As discussed in section IV.D.1.d. of the preamble of this final
rule, because there will no longer be any LTCHs in their cost
reporting periods that began during FYs 2003 or 2004 (the first and
second years of the 5-year wage index phase- in, respectively), we are
no longer showing the \1/5\ and \2/5\ wage index value. For further
details on the 5-year phase-in of the wage index, see section
IV.D.1.of this final rule.
\2\ Three-fifths of the full wage index value, applicable for a LTCH's
cost reporting period beginning on or after October 1, 2004 through
September 30, 2005 (Federal FY 2005). That is, for a LTCH's cost
reporting period that begins during Federal FY 2005 and located in
Chicago, Illinois (CBSA 16974), the 3/5ths wage index value is
computed as ((3*1.0790) + 2))/5 = 1.0474. For further details on the 5-
year phase-in of the wage index, see section IV.D.1. of this final
rule.
\3\ Four-fifths of the full wage index value, applicable for a LTCH's
cost reporting period beginning on or after October 1, 2005 through
September 30, 2006 (Federal FY 2006). That is, for a LTCH's cost
reporting period that begins during Federal FY 2006 and located in
Chicago, Illinois (CBSA 16974), the 4/5ths wage index value is
computed as ((4*1.0790) + 1))/5 = 1.0632. For further details on the 5-
year phase-in of the wage index, see section IV.D.1. of this final
rule.
\4\ The wage index values are calculated using the same wage data used
to compute the wage index used by acute care hospitals under the IPPS
for Federal FY 2006 (that is, fiscal year 2002 audited acute care
hospital inpatient wage data without regard to reclassification under
section 1886(d)(8) or section 1886(d)(10) of the Act).

Table 2.--Long-Term Care Hospital Wage Index for Rural Areas for
Discharges Occurring From July 1, 2006 Through June 30, 2007 \1\
------------------------------------------------------------------------
3/5ths 4/5ths Full
CBSA code Nonurban area wage wage wage
index \2\ index \3\ index \4\
------------------------------------------------------------------------
01............. Alabama............... 0.8468 0.7957 0.7446

[[Page 27930]]

02............. Alaska................ 1.1186 1.1582 1.1977
03............. Arizona............... 0.9261 0.9014 0.8768
04............. Arkansas.............. 0.8480 0.7973 0.7466
05............. California............ 1.0632 1.0843 1.1054
06............. Colorado.............. 0.9628 0.9504 0.9380
07............. Connecticut........... 1.1038 1.1384 1.1730
08............. Delaware.............. 0.9747 0.9663 0.9579
10............. Florida............... 0.9141 0.8854 0.8568
11............. Georgia............... 0.8597 0.8130 0.7662
12............. Hawaii................ 1.0331 1.0441 1.0551
13............. Idaho................. 0.8822 0.8430 0.8037
14............. Illinois.............. 0.8963 0.8617 0.8271
15............. Indiana............... 0.9174 0.8899 0.8624
16............. Iowa.................. 0.9105 0.8807 0.8509
17............. Kansas................ 0.8821 0.8428 0.8035
18............. Kentucky.............. 0.8660 0.8213 0.7766
19............. Louisiana............. 0.8447 0.7929 0.7411
20............. Maine................. 0.9306 0.9074 0.8843
21............. Maryland.............. 0.9612 0.9482 0.9353
22............. Massachusetts \5\..... ......... ......... .........
23............. Michigan.............. 0.9337 0.9116 0.8895
24............. Minnesota............. 0.9479 0.9306 0.9132
25............. Mississippi........... 0.8604 0.8139 0.7674
26............. Missouri.............. 0.8740 0.8320 0.7900
27............. Montana............... 0.9257 0.9010 0.8762
28............. Nebraska.............. 0.9194 0.8926 0.8657
29............. Nevada................ 0.9439 0.9252 0.9065
30............. New Hampshire......... 1.0490 1.0654 1.0817
31............. New Jersey \5\........ ......... ......... .........
32............. New Mexico............ 0.9181 0.8908 0.8635
33............. New York.............. 0.8892 0.8523 0.8154
34............. North Carolina........ 0.9124 0.8832 0.8540
35............. North Dakota.......... 0.8357 0.7809 0.7261
36............. Ohio.................. 0.9296 0.9061 0.8826
37............. Oklahoma.............. 0.8549 0.8065 0.7581
38............. Oregon................ 0.9896 0.9861 0.9826
39............. Pennsylvania.......... 0.8975 0.8633 0.8291
40............. Puerto Rico \5\....... ......... ......... .........
41............. Rhode Island \5\...... ......... ......... .........
42............. South Carolina........ 0.9183 0.8910 0.8638
43............. South Dakota.......... 0.9136 0.8848 0.8560
44............. Tennessee............. 0.8737 0.8316 0.7895
45............. Texas................. 0.8802 0.8402 0.8003
46............. Utah.................. 0.8871 0.8494 0.8118
47............. Vermont............... 0.9898 0.9864 0.9830
49............. Virginia.............. 0.8808 0.8410 0.8013
50............. Washington............ 1.0306 1.0408 1.0510
51............. West Virginia......... 0.8630 0.8174 0.7717
52............. Wisconsin............. 0.9705 0.9607 0.9509
53............. Wyoming............... 0.9554 0.9406 0.9257
------------------------------------------------------------------------
\1\ As discussed insection IV.D.1.d. of the preamble of this final rule,
because there are no longer any LTCHs in their cost reporting periods
that began during FYs 2003 and 2004 (the first and second years of the
5-year wage index phase-in, respectively), weare no longer showing the
1/5th and 2/5ths wage index value. For further details on the 5-year
phase- in of the wage index, see section IV.D.1. of this final rule.
\2\ The wage index values are calculated using the same wage data used
to compute the wage index used by acute care hospitals under the IPPS
for Federal FY 2006 (that is, fiscal year 2002 audited acute care
hospital in patient waged at a without regard to reclassification
under section 1886(d)(8) or section 1886(d)(10) of the Act).
\3\ Three-fifths of the full wage index value, applicable for a LTCH's
cost reporting period beginning on or after October 1, 2004 through
September 30, 2005 (Federal FY 2005). That is, for a LTCH's cost
reporting period that begins during Federal FY 2005 and located in
rural Illinois, the 3/5ths wage index value is computed as ((3*0.8271)
+ 2))/5 = 0.8963. For further details on the 5-year phase-in of the
wage index, see section IV.D.1. of this final rule.
\4\ Four-fifths of the full wage index value, applicable for a LTCH's
cost reporting period beginning on or after October 1, 2005 through
September 30, 2006 (Federal FY 2006). That is, for a LTCH's cost
reporting period that begins during Federal FY 2006 and located in
rural Illinois, the 4/5ths wage index value is computed as ((3*0.9271)
+ 2))/5 = 0.8617. For further details on the 5-year phase-in of the
wage index, see section IV.D.1. of this final rule.
\5\ All counties with in the State are classified as urban.

[[Page 27931]]

Table 3.--FY 2006 LTC-DRGs, Relative Weights, Geometric Average Length
of Stay and Five-Sixths of the Geometric Average Length of Stay
[Effective for discharges occurring on or after October 1, 2005 through
September 30, 2006]
------------------------------------------------------------------------
Five-sixths
Geometric of the
LTC-DRG Description Relative avenue geometric
weight length of length of
stay stay
------------------------------------------------------------------------
1............... \5\ CRANIOTOMY 1.7034 38.5 32.1
AGE >17 W CC.
2............... \7\ CRANIOTOMY 1.7034 38.5 32.1
AGE >17 W/O CC.
3............... \7\ CRANIOTOMY 1.7034 38.5 32.1
AGE 0-17.
6............... \7\ CARPAL 0.4499 19.0 15.8
TUNNEL RELEASE.
7............... PERIPH & 1.3984 37.7 31.4
CRANIAL NERVE
& OTHER NERV
SYST PROC W CC.
8............... \3\ PERIPH & 0.7637 24.8 20.7
CRANIAL NERVE
& OTHER NERV
SYST PROC W/O
CC.
9............... SPINAL 0.9720 33.7 28.1
DISORDERS &
INJURIES.
10.............. NERVOUS SYSTEM 0.7554 24.5 20.4
NEOPLASMS W CC.
11.............. \2\ NERVOUS 0.5837 21.3 17.8
SYSTEM
NEOPLASMS W/O
CC.
12.............. DEGENERATIVE 0.6851 25.5 21.3
NERVOUS SYSTEM
DISORDERS.
13.............. MULTIPLE 0.6531 23.1 19.3
SCLEROSIS &
CEREBELLAR
ATAXIA.
14.............. INTERCRANIAL 0.7783 26.0 21.7
HEMORRHAGE OR
STROKE WITH
INFARCT.
15.............. NONSPECIFIC CVA 0.7314 26.8 22.3
& PRECEREBRAL
OCCULUSION
WITHOUT
INFARCT.
16.............. NONSPECIFIC 0.7471 23.5 19.6
CEREBROVASCULA
R DISORDERS W
CC.
17.............. \1\ NONSPECIFIC 0.4499 19.0 15.8
CEREBROVASCULA
R DISORDERS W/
O CC.
18.............. CRANIAL & 0.7197 23.6 19.7
PERIPHERAL
NERVE
DISORDERS W CC.
19.............. CRANIAL & 0.4773 21.2 17.7
PERIPHERAL
NERVE
DISORDERS W/O
CC.
20.............. NERVOUS SYSTEM 1.0277 27.2 22.7
INFECTION
EXCEPT VIRAL
MENINGITIS.
21.............. \3\ VIRAL 0.7637 24.8 20.7
MENINGITIS.
22.............. \4\ 1.1823 29.6 24.7
HYPERTENSIVE
ENCEPHALOPATHY.
23.............. NONTRAUMATIC 0.8054 25.4 21.2
STUPOR & COMA.
24.............. SEIZURE & 0.6251 22.6 18.8
HEADACHE AGE
>17 W CC.
25.............. \1\ SEIZURE & 0.4499 19.0 15.8
HEADACHE AGE
>17 W/O CC.
26.............. \7\ SEIZURE & 0.4499 19.0 15.8
HEADACHE AGE 0-
17.
27.............. TRAUMATIC 0.9444 27.1 22.6
STUPOR & COMA,
COMA >1 HR.
28.............. TRAUMATIC 0.8890 30.2 25.2
STUPOR & COMA,
COMA <1 HR AGE
>17 W CC.
29.............. \2\ TRAUMATIC 0.5837 21.3 17.8
STUPOR & COMA,
COMA <1 HR AGE
>17 W/O CC.
30.............. \7\ TRAUMATIC 0.5837 21.3 17.8
STUPOR & COMA,
COMA <1 HR AGE
0-17.
31.............. \3\ CONCUSSION 0.7637 24.8 20.7
AGE >17 W CC.
32.............. \7\ CONCUSSION 0.4499 19.0 15.8
AGE >17 W/O CC.
33.............. \7\ CONCUSSION 0.4499 19.0 15.8
AGE 0-17.
34.............. OTHER DISORDERS 0.8004 25.3 21.1
OF NERVOUS
SYSTEM W CC.
35.............. OTHER DISORDERS 0.5698 24.2 20.2
OF NERVOUS
SYSTEM W/O CC.
36.............. \7\ RETINAL 1.1820 29.6 24.7
PROCEDURES.
37.............. \7\ ORBITAL 1.1820 29.6 24.7
PROCEDURES.
38.............. \7\ PRIMARY 1.1820 29.6 24.7
IRIS
PROCEDURES.
39.............. \7\ LENS 1.1820 29.6 24.7
PROCEDURES
WITH OR
WITHOUT
VITRECTOMY.
40.............. \4\ EXTRAOCULAR 1.1820 29.6 24.7
PROCEDURES
EXCEPT ORBIT
AGE >17.
41.............. \7\ EXTRAOCULAR 1.1820 29.6 24.7
PROCEDURES
EXCEPT ORBIT
AGE 0-17.
42.............. \7\ INTRAOCULAR 1.1820 29.6 24.7
PROCEDURES
EXCEPT RETINA,
IRIS & LENS.
43.............. \7\ HYPHEMA.... 1.1820 29.6 24.7
44.............. \2\ ACUTE MAJOR 0.5837 21.3 17.8
EYE INFECTIONS.
45.............. \7\ 1.1820 29.6 24.7
NEUROLOGICAL
EYE DISORDERS.
46.............. \2\ OTHER 0.5837 21.3 17.8
DISORDERS OF
THE EYE AGE
>17 W CC.
47.............. \7\ OTHER 1.1820 29.6 24.7
DISORDERS OF
THE EYE AGE
>17 W/O CC.
48.............. \7\ OTHER 1.1820 29.6 24.7
DISORDERS OF
THE EYE AGE 0-
17.
49.............. \7\ MAJOR HEAD 1.1820 29.6 24.7
& NECK
PROCEDURES.
50.............. S \7\ 1.1820 29.6 24.7
IALOADENECTOMY.
51.............. \7\ SALIVARY 1.1820 29.6 24.7
GLAND
PROCEDURES
EXCEPT
SIALOADENECTOM
Y.
52.............. \7\ CLEFT LIP & 1.1820 29.6 24.7
PALATE REPAIR.
53.............. \7\ SINUS & 1.1820 29.6 24.7
MASTOID
PROCEDURES AGE
>17.
54.............. \7\ SINUS & 1.1820 29.6 24.7
MASTOID
PROCEDURES AGE
0-17.
55.............. \7\ 1.1820 29.6 24.7
MISCELLANEOUS
EAR, NOSE,
MOUTH & THROAT
PROCEDURES.
56.............. \7\ RHINOPLASTY 1.1820 29.6 24.7
57.............. T&A PROC, 0.4499 19.0 15.8
EXCEPT
TONSILLECTOMY
&/OR
ADENOIDECTOMY
ONLY, AGE >17.
58.............. \7\ T&A PROC, 0.4499 19.0 15.8
EXCEPT
TONSILLECTOMY
&/OR
ADENOIDECTOMY
ONLY, AGE 0-17.
59.............. \7\ 0.4499 19.0 15.8
TONSILLECTOMY
&/OR
ADENOIDECTOMY
ONLY, AGE >17
9.
60.............. \7\ 0.4499 19.0 15.8
TONSILLECTOMY
&/OR
ADENOIDECTOMY
ONLY, AGE 0-17.
61.............. \3\ MYRINGOTOMY 0.7637 24.8 20.7
W TUBE
INSERTION AGE
>17.
62.............. \7\ MYRINGOTOMY 0.4499 19.0 15.8
W TUBE
INSERTION AGE
0-17.
63.............. \4\ OTHER EAR, 1.1820 29.6 24.7
NOSE, MOUTH &
THROAT O.R.
PROCEDURES.
64.............. EAR, NOSE, 1.1480 26.2 21.8
MOUTH & THROAT
MALIGNANCY.
65.............. \1\ 0.4499 19.0 15.8
DYSEQUILIBRIUM.
66.............. \7\ EPISTAXIS.. 0.4499 19.0 15.8

[[Page 27932]]

67.............. \3\ 0.7637 24.8 20.7
EPIGLOTTITIS.
68.............. OTITIS MEDIA & 0.511 18.0 15.0
URI AGE >17 W
CC1.
69.............. \1\ OTITIS 0.4499 19.0 15.8
MEDIA & URI
AGE >17 W/O CC.
70.............. \7\ OTITIS 0.4499 19.0 15.8
MEDIA & URI
AGE 0-17.
71.............. \7\ 0.5837 21.3 17.8
LARYNGOTRACHEI
TIS.
72.............. \7\ NASAL 0.7637 24.8 20.7
TRAUMA &
DEFORMITY.
73.............. OTHER EAR, 0.7535 21.9 18.3
NOSE, MOUTH &
THROAT
DIAGNOSES AGE
>17.
74.............. \7\ OTHER EAR, 0.4499 19.0 15.8
NOSE, MOUTH &
THROAT
DIAGNOSES AGE
0-17.
75.............. \5\ MAJOR CHEST 1.7034 38.5 32.1
PROCEDURES.
76.............. OTHER RESP 2.5523 43.9 36.6
SYSTEM O.R.
PROCEDURES W
CC.
77.............. \5\ OTHER RESP 1.7034 38.5 32.1
SYSTEM O.R.
PROCEDURES W/O
CC.
78.............. PULMONARY 0.6900 21.9 18.3
EMBOLISM.
79.............. RESPIRATORY 0.8280 22.9 19.1
INFECTIONS &
INFLAMMATIONS
AGE >17 W CC.
80.............. RESPIRATORY 0.5986 21.7 18.1
INFECTIONS &
INFLAMMATIONS
AGE >17 W/O CC.
81.............. \7\ RESPIRATORY 0.4499 19.0 15.8
INFECTIONS &
INFLAMMATIONS
AGE 0-17.
82.............. RESPIRATORY 0.7174 20.1 16.8
NEOPLASMS.
83.............. \2\ MAJOR CHEST 0.5837 21.3 17.8
TRAUMA W CC.
84.............. \7\ MAJOR CHEST 0.5837 21.3 17.8
TRAUMA W/O CC.
85.............. PLEURAL 0.7264 21.2 17.7
EFFUSION W CC.
86.............. \1\ PLEURAL 0.4499 19.0 15.8
EFFUSION W/O
CC.
87.............. PULMONARY EDEMA 1.0812 25.4 21.2
& RESPIRATORY
FAILURE.
88.............. CHRONIC 0.6585 19.6 16.3
OBSTRUCTIVE
PULMONARY
DISEASE.
89.............. SIMPLE 0.6987 20.8 17.3
PNEUMONIA &
PLEURISY AGE
>17 W CC.
90.............. SIMPLE 0.4970 17.8 14.8
PNEUMONIA &
PLEURISY AGE
>17 W/O CC.
91.............. \7\ SIMPLE 0.4499 19.0 15.8
PNEUMONIA &
PLEURISY AGE 0-
17.
92.............. INTERSTITIAL 0.670 20.2 16.8
LUNG DISEASE W
CC.
93.............. \2\ 0.5837 21.3 17.8
INTERSTITIAL
LUNG DISEASE W/
O CC.
94.............. PNEUMOTHORAX W 0.5880 17.0 14.2
CC.
95.............. PNEUMOTHORAX W/ 0.4499 19.0 15.8
O CC.
96.............. BRONCHITIS & 0.6417 19.4 16.2
ASTHMA AGE >17
W CC.
97.............. \2\ BRONCHITIS 0.5837 21.3 17.8
& ASTHMA AGE
>17 W/O CC.
98.............. \7\ BRONCHITIS 0.5837 21.3 17.8
& ASTHMA AGE 0-
17.
99.............. RESPIRATORY 0.9219 23.2 19.3
SIGNS &
SYMPTOMS W CC.
100............. \3\ RESPIRATORY 0.7637 24.8 20.7
SIGNS &
SYMPTOMS W/O
CC.
101............. OTHER 0.8147 21.1 17.6
RESPIRATORY
SYSTEM
DIAGNOSES W CC.
102............. \1\ OTHER 0.4499 19.0 15.8
RESPIRATORY
SYSTEM
DIAGNOSES W/O
CC.
103............. \6\ HEART 0.0000 0.0 0.0
TRANSPLANT OR
IMPLANT OF
HEART ASSIST
SYSTEM.
104............. \7\ CARDIAC 0.7637 24.8 20.7
VALVE & OTHER
MAJOR
CARDIOTHORACIC
PROC W CARDIAC
CATH.
105............. \7\ CARDIAC 0.7637 24.8 20.7
VALVE & OTHER
MAJOR
CARDIOTHORACIC
PROC W/O
CARDIAC CATH.
106............. \7\ CORONARY 0.7637 24.8 20.7
BYPASS W PTCA.
108............. \7\ OTHER 0.7637 24.8 20.7
CARDIOTHORACIC
PROCEDURES.
110............. MAJOR 0.7637 24.8 20.7
CARDIOVASCULAR
PROCEDURES W
CC.
111............. \7\ MAJOR 0.763 24.8 20.7
CARDIOVASCULAR
PROCEDURES W/O
CC.
113............. AMPUTATION FOR 1.4887 39.3 32.8
CIRC SYSTEM
DISORDERS
EXCEPT UPPER
LIMB & TOE.
114............. UPPER LIMB & 1.2389 33.2 27.7
TOE AMPUTATION
FOR CIRC
SYSTEM
DISORDERS.
117............. \4\ CARDIAC 1.1820 29.6 24.7
PACEMAKER
REVISION
EXCEPT DEVICE
REPLACEMENT.
118............. \4\ CARDIAC 1.1820 29.6 24.7
PACEMAKER
DEVICE
REPLACEMENT.
119............. \4\ VEIN 0.7637 24.8 20.7
LIGATION &
STRIPPING.
120............. OTHER 1.0979 31.7 26.4
CIRCULATORY
SYSTEM O.R.
PROCEDURES.
121............. CIRCULATORY 0.8429 23.2 19.3
DISORDERS W
AMI & MAJOR
COMP,
DISCHARGED
ALIVE.
122............. \4\ CIRCULATORY 0.5837 21.3 17.8
DISORDERS W
AMI W/O MAJOR
COMP,
DISCHARGED
ALIVE.
123............. CIRCULATORY 1.1811 20.4 17.0
DISORDERS W
AMI, EXPIRED.
124............. \4\ CIRCULATORY 1.1820 29.6 24.7
DISORDERS
EXCEPT AMI, W
CARD CATH &
COMPLEX DIAG.
125............. \3\ CIRCULATORY 0.7637 24.8 20.7
DISORDERS
EXCEPT AMI, W
CARD CATH W/O
COMPLEX DIAG.
126............. ACUTE & 0.8386 25.3 21.1
SUBACUTE
ENDOCARDITIS.
127............. HEART FAILURE & 0.6857 21.2 17.7
SHOCK.
128............. \2\ DEEP VEIN 0.5837 21.3 17.8
THROMBOPHLEBIT
IS.
129............. \7\ CARDIAC 0.7637 24.8 20.7
ARREST,
UNEXPLAINED.
130............. PERIPHERAL 0.6741 23.2 19.3
VASCULAR
DISORDERS W CC.
131............. PERIPHERAL 0.4675 20.4 17.0
VASCULAR
DISORDERS W/O
CC.
132............. ATHEROSCLEROSIS 0.6565 21.8 18.2
W CC.
133............. \1\ 0.4499 19.0 15.8
ATHEROSCLEROSI
S W/O CC.
134............. HYPERTENSION... 0.6354 24.8 20.7

[[Page 27933]]

135............. CARDIAC 0.7211 23.7 19.8
CONGENITAL &
VALVULAR
DISORDERS AGE
>17 W CC.
136............. \2\ CARDIAC 0.5837 2.3 17.8
CONGENITAL &
VALVULAR
DISORDERS AGE
>17 W/O CC.
137............. \7\ CARDIAC 0.5837 21.3 17.8
CONGENITAL &
VALVULAR
DISORDERS AGE
0-17.
138............. CARDIAC 0.6201 20.5 17.1
ARRHYTHMIA &
CONDUCTION
DISORDERS W CC.
139............. \2\ CARDIAC 0.5837 2.3 17.8
ARRHYTHMIA &
CONDUCTION
DISORDERS W/O
CC.
140............. \1\ ANGINA 0.4499 19.0 15.8
PECTORIS.
141............. \8\ SYNCOPE & 0.4271 18.3 15.3
COLLAPSE W CC.
142............. \8\ SYNCOPE & 0.4271 18.3 15.3
COLLAPSE W/O
CC.
143............. \1\ CHEST PAIN. 0.4499 19.0 15.8
144............. OTHER 0.7413 21.7 18.1
CIRCULATORY
SYSTEM
DIAGNOSES W CC.
145............. OTHER 0.4568 18.2 15.2
CIRCULATORY
SYSTEM
DIAGNOSES W/O
CC.
146............. \7\ RECTAL 1.7034 38.5 32.1
RESECTION W CC.
147............. \7\ RECTAL 1.7034 38.5 32.1
RESECTION W/O
CC.
148............. MAJOR SMALL & 1.8616 40.9 34.1
LARGE BOWEL
PROCEDURES W
CC.
149............. \7\ MAJOR SMALL 0.7637 24.8 20.7
& LARGE BOWEL
PROCEDURES W/O
CC.
150............. \4\ PERITONEAL 1.1820 29.6 24.7
ADHESIOLYSIS W
CC.
151............. \2\ PERITONEAL 0.5837 21.3 17.8
ADHESIOLYSIS W/
O CC.
152............. \3\ MINOR SMALL 0.7637 24.8 20.7
& LARGE BOWEL
PROCEDURES W
CC.
153............. \7\ MINOR SMALL 0.7637 24.8 20.7
& LARGE BOWEL
PROCEDURES W/O
CC.
154............. \5\ STOMACH, 1.7034 38.5 32.1
ESOPHAGEAL &
DUODENAL
PROCEDURES AGE
>17 W CC.
155............. \7\ STOMACH, 1.7034 38.5 32.1
ESOPHAGEAL &
DUODENAL
PROCEDURES AGE
>17 W/O CC.
156............. \7\ STOMACH, 1.7034 38.5 32.1
ESOPHAGEAL &
DUODENAL
PROCEDURES AGE
0-17.
157............. \4\ ANAL & 1.1820 29.6 24.7
STOMAL
PROCEDURES W
CC.
158............. \7\ ANAL & 1.1820 29.6 24.7
STOMAL
PROCEDURES W/O
CC.
159............. \7\ HERNIA 0.7637 24.8 20.7
PROCEDURES
EXCEPT
INGUINAL &
FEMORAL AGE
>17 W CC.
160............. \7\ HERNIA 0.7637 24.8 20.7
PROCEDURES
EXCEPT
INGUINAL &
FEMORAL AGE
>17 W/O CC.
161............. \5\ INGUINAL & 1.7034 38.5 32.1
FEMORAL HERNIA
PROCEDURES AGE
>17 W CC.
162............. \7\ INGUINAL & 0.7637 24.8 20.7
FEMORAL HERNIA
PROCEDURES AGE
>17 W/O CC.
163............. \7\ HERNIA 0.7637 24.8 20.7
PROCEDURES AGE
0-17.
164............. \1\ 1.7034 38.5 32.1
APPENDECTOMY W
COMPLICATED
PRINCIPAL DIAG
W CC.
165............. \7\ 1.7034 38.5 32.1
APPENDECTOMY W
COMPLICATED
PRINCIPAL DIAG
W/O CC.
166............. \7\ 1.7034 38.5 32.1
APPENDECTOMY W/
O COMPLICATED
PRINCIPAL DIAG
W4 CC.
167............. \7\ 1.7034 38.5 32.1
APPENDECTOMY W/
O COMPLICATED
PRINCIPAL DIAG
W/O CC.
168............. \4\ MOUTH 1.1820 29.6 24.7
PROCEDURES W
CC.
169............. \7\ MOUTH 0.7637 24.8 20.7
PROCEDURES W/O
CC.
170............. OTHER DIGESTIVE 1.6271 35.9 29.9
SYSTEM O.R.
PROCEDURES W
CC.
171............. \1\ OTHER 0.4499 19.0 15.8
DIGESTIVE
SYSTEM O.R.
PROCEDURES W/O
CC.
172............. DIGESTIVE 0.8553 21.8 18.2
MALIGNANCY W
CC.
173............. \2\ DIGESTIVE 0.5837 21.3 17.8
MALIGNANCY W/O
CC.
174............. G.I. HEMORRHAGE 0.7119 22.2 18.5
W CC.
175............. \1\ G.I. 0.4499 19.0 15.8
HEMORRHAGE W/O
CC.
176............. COMPLICATED 0.8426 21.5 17.9
PEPTIC ULCER.
177............. \3\ 0.7637 24.8 20.7
UNCOMPLICATED
PEPTIC ULCER W
CC.
178............. \3\ 0.7637 24.8 20.7
UNCOMPLICATED
PEPTIC ULCER W/
O CC.
179............. INFLAMMATORY 0.9675 24.0 20.0
BOWEL DISEASE.
180............. G.I. 0.9375 23.5 19.6
OBSTRUCTION W
CC.
181............. \3\ G.I. 0.7637 24.8 20.7
OBSTRUCTION W/
O CC.
182............. ESOPHAGITIS, 0.7745 22.6 18.8
GASTROENT &
MISC DIGEST
DISORDERS AGE
>17 W CC.
183............. ESOPHAGITIS, 0.3870 16.8 14.0
GASTROENT &
MISC DIGEST
DISORDERS AGE
>17 W/O CC.
184............. \7\ 0.4499 19.0 15.8
ESOPHAGITIS,
GASTROENT &
MISC DIGEST
DISORDERS AGE
0-17.
185............. \3\ DENTAL & 0.7637 24.8 20.7
ORAL DIS
EXCEPT
EXTRACTIONS &
RESTORATIONS,
AGE >17.
186............. \7\ DENTAL & 0.7637 24.8 20.7
ORAL DIS
EXCEPT
EXTRACTIONS &
RESTORATIONS,
AGE 0-17.
187............. \7\ DENTAL 0.7637 24.8 20.7
EXTRACTIONS &
RESTORATIONS.
188............. OTHER DIGESTIVE 0.9952 24.0 20.0
SYSTEM
DIAGNOSES AGE
>17 W CC.
189............. OTHER DIGESTIVE 0.4707 18.2 15.2
SYSTEM
DIAGNOSES AGE
>17 W/O CC.
190............. \7\ OTHER 0.4499 19.0 15.8
DIGESTIVE
SYSTEM
DIAGNOSES AGE
0-17.
191............. \4\ PANCREAS, 1.1820 29.6 24.7
LIVER & SHUNT
PROCEDURES W
CC.
192............. \7\ PANCREAS, 1.1820 29.6 24.7
LIVER & SHUNT
PROCEDURES W/O
CC.
193............. \3\ BILIARY 0.7637 24.8 20.7
TRACT PROC
EXCEPT ONLY
CHOLECYST W OR
W/O C.D.E. W
CC.
194............. \7\ BILIARY 0.7637 24.8 20.7
TRACT PROC
EXCEPT ONLY
CHOLECYST W OR
W/O C.D.E. W/O
CC.
195............. \3\ 0.7637 24.8 20.7
CHOLECYSTECTOM
Y W C.D.E. W
CC.
196............. \7\ 0.7637 24.8 20.7
CHOLECYSTECTOM
Y W C.D.E. W/O
CC.
197............. \3\ 0.7637 24.8 20.7
CHOLECYSTECTOM
Y EXCEPT BY
LAPAROSCOPE W/
O C.D.E. W CC.
198............. \7\ 0.7637 24.8 20.7
CHOLECYSTECTOM
Y EXCEPT BY
LAPAROSCOPE W/
O C.D.E. W/O
CC.
199............. \7\ 1.7034 38.5 32.1
HEPATOBILIARY
DIAGNOSTIC
PROCEDURE FOR
MALIGNANCY.

[[Page 27934]]

200............. \5\ 1.7034 38.5 32.1
HEPATOBILIARY
DIAGNOSTIC
PROCEDURE FOR
NON-MALIGNANCY.
201............. OTHER 2.0371 36.1 30.1
HEPATOBILIARY
OR PANCREAS
O.R.
PROCEDURES.
202............. CIRRHOSIS & 0.6610 20.6 17.2
ALCOHOLIC
HEPATITIS.
203............. MALIGNANCY OF 0.7896 19.5 16.3
HEPATOBILIARY
SYSTEM OR
PANCREAS.
204............. DISORDERS OF 0.9441 22.7 18.9
PANCREAS
EXCEPT
MALIGNANCY.
205............. DISORDERS OF 0.6642 20.5 17.1
LIVER EXCEPT
MALIG, CIRR,
ALC HEPA W CC.
206............. \2\ DISORDERS 0.5837 21.3 17.8
OF LIVER
EXCEPT MALIG,
CIRR, ALC HEPA
W/O CC.
207............. DISORDERS OF 0.7570 21.5 17.9
THE BILIARY
TRACT W CC.
208............. \2\ DISORDERS 0.5837 21.3 17.8
OF THE BILIARY
TRACT W/O CC.
210............. \5\ HIP & FEMUR 1.7034 38.5 32.1
PROCEDURES
EXCEPT MAJOR
JOINT AGE >17
W/O CC.
211............. \4\ HIP & FEMUR 1.1820 29.6 24.7
PROCEDURES
EXCEPT MAJOR
JOINT AGE >17
W/O CC.
212............. \7\ HIP & FEMUR 1.7034 38.5 32.1
PROCEDURES
EXCEPT MAJOR
JOINT AGE 0-17.
213............. AMPUTATION FOR 1.1948 34.0 28.3
MUSCULOSKELETA
L SYSTEM &
CONN TISSUE
DISORDERS.
216............. \4\ BIOPSIES OF 1.1820 29.6 24.7
MUSCULOSKELETA
L SYSTEM &
CONNECTIVE
TISSUE.
217............. WND DEBRID & 1.2927 38.0 31.7
SKN GRFT
EXCEPT HAND,
FOR MUSCSKELET
& CONN TISS
DIS.
218............. \5\ LOWER 1.7034 38.5 32.1
EXTREM & HUMER
PROC EXCEPT
HIP, FOOT,
FEMUR AGE >17
W CC.
219............. \1\ LOWER 0.4499 19.0 15.8
EXTREM & HUMER
PROC EXCEPT
HIP, FOOT,
FEMUR AGE >17
W/O CC.
220............. \7\ LOWER 1.7034 38.5 32.1
EXTREM & HUMER
PROC EXCEPT
HIP, FOOT,
FEMUR AGE 0-17.
223............. \3\ MAJOR 0.7673 24.8 20.7
SHOULDER/ELBOW
PROC, OR OTHER
UPPER
EXTREMITY PROC
W CC.
224............. \7\ 0.7637 24.8 20.7
SHOULDER,ELBOW
OR FOREARM
PROC, EXC
MAJOR JOINT
PROC, W/O CC.
225............. FOOT PROCEDURES 0.9869 28.4 23.7
226............. SOFT TISSUE 0.9443 29.5 24.6
PROCEDURES W
CC.
227............. \3\ SOFT TISSUE 0.7637 24.8 20.7
PROCEDURES W/O
CC.
228............. \4\ MAJOR THUMB 1.1820 29.6 24.7
OR JOINT PROC,
OR OTH HAND OR
WRIST PROC W
CC.
229............. \7\ HAND OR 0.4499 19.0 15.8
WRIST PROC,
EXCEPT MAJOR
JOINT PROC, W/
O CC.
230............. \5\ LOCAL 1.7034 38.5 32.1
EXCISION &
REMOVAL OF INT
FIX DEVICES OF
HIP & FEMUR.
232............. \7\ ARTHROSCOPY 0.4499 19.0 15.8
233............. OTHER 1.3522 34.6 28.8
MUSCULOSKELET
SYS & CONN
TISS O.R. PROC
W CC.
234............. \7\ OTHER 0.4499 19.0 15.8
MUSCULOSKELET
SYS & CONN
TISS O.R. PROC
W/O CC.
235............. \3\ FRACTURES 0.7637 24.8 20.7
OF FEMUR.
236............. FRACTURES OF 0.6531 25.2 21.0
HIP & PELVIS.
237............. \1\ SPRAINS, 0.4499 19.0 15.8
STRAINS, &
DISLOCATIONS
OF HIP, PELVIS
& THIGH.
238............. OSTEOMYELITIS.. 0.8278 28.3 23.6
239............. PATHOLOGICAL 0.6935 23.6 19.7
FRACTURES &
MUSCULOSKELETA
L & CONN TISS
MALIGNANCY.
240............. CONNECTIVE 0.7310 24.8 20.7
TISSUE
DISORDERS W CC.
241............. \1\ CONNECTIVE 0.4499 19.0 15.8
TISSUE
DISORDERS W/O
CC.
242............. SEPTIC 0.7864 26.5 22.1
ARTHRITIS.
243............. MEDICAL BACK 0.6061 23.4 19.5
PROBLEMS.
244............. BONE DISEASES & 0.5259 22.2 18.5
SPECIFIC
ARTHROPATHIES
W CC.
245............. BONE DISEASES & 0.4635 20.4 17.0
SPECIFIC
ARTHROPATHIES
W/O CC.
246............. \1\ NON- 0.4499 19.0 15.8
SPECIFIC
ARTHROPATHIES.
247............. SIGNS & 0.5548 21.9 18.3
SYMPTOMS OF
MUSCULOSKELETA
L SYSTEM &
CONN 8 TISSUE.
248............. TENDONITIS, 0.6574 22.6 18.8
MYOSITIS &
BURSITIS.
249............. AFTERCARE, 0.6577 24.7 20.6
MUSCULOSKELETA
L SYSTEM &
CONNECTIVE
TISSUE.
250............. \2\ FX, SPRN, 0.5837 21.3 17.8
STRN & DISL OF
FOREARM, HAND,
FOOT AGE >17 W
CC.
251............. \1\ FX, SPRN, 0.4499 19.0 15.8
STRN & DISL OF
FOREARM, HAND,
FOOT AGE >17 W/
O CC.
252............. \7\ 7 FX, SPRN, 0.7637 24.8 20.7
STRN & DISL OF
FOREARM, HAND,
FOOT AGE 0-17.
253............. FX, SPRN, STRN 0.6802 26.3 21.9
& DISL OF
UPARM, LOWLEG
EX FOOT AGE
>17 W CC.
254............. \2\ FX, SPRN, 0.5837 21.3 17.8
STRN & DISL OF
UPARM, LOWLEG
EX FOOT AGE
>17 W/O CC.
255............. \7\ FX, SPRN, 0.7637 24.8 20.7
STRN & DISL OF
UPARM, LOWLEG
EX FOOT AGE 0-
17.
256............. OTHER 0.7924 25.3 21.1
MUSCULOSKELETA
L SYSTEM &
CONNECTIVE
TISSUE
DIAGNOSES.
257............. \7\ TOTAL 0.7637 24.8 20.7
MASTECTOMY FOR
MALIGNANCY W
CC.
258............. \7\ TOTAL 0.7637 24.8 20.7
MASTECTOMY FOR
MALIGNANCY W/O
CC.
259............. \2\ SUBTOTAL 0.5837 21.3 17.8
MASTECTOMY FOR
MALIGNANCY W
CC.
260............. \7\ SUBTOTAL 0.7637 24.8 20.7
MASTECTOMY FOR
MALIGNANCY W/O
CC.
261............. \7\ BREAST PROC 0.7637 24.8 20.7
FOR NON-
MALIGNANCY
EXCEPT BIOPSY
& LOCAL
EXCISION.
262............. \1\ BREAST 0.4499 19.0 15.8
BIOPSY & LOCAL
EXCISION FOR
NON-MALIGNANCY.
263............. SKIN GRAFT &/OR 1.3222 39.5 32.9
DEBRID FOR SKN
ULCER OR
CELLULITIS W
CC.
264............. SKIN GRAFT &/OR 0.9584 32.0 26.7
DEBRID FOR SKN
ULCER OR
CELLULITIS W/O
CC.

[[Page 27935]]

265............. SKIN GRAFT &/OR 1.0398 33.1 27.6
DEBRID EXCEPT
FOR SKIN ULCER
OR CELLULITIS
W CC.
266............. \3\ SKIN GRAFT 0.7637 24.8 20.7
&/OR DEBRID
EXCEPT FOR
SKIN ULCER OR
CELLULITIS W/O
CC.
267............. \7\ PERIANAL & 0.7637 24.8 20.7
PILONIDAL
PROCEDURES.
268............. \5\ SKIN, 1.7034 38.5 32.1
SUBCUTANEOUS
TISSUE &
BREAST PLASTIC
PROCEDURES.
269............. OTHER SKIN, 1.3037 36.1 30.1
SUBCUT TISS &
BREAST PROC W
CC.
270............. \3\ OTHER SKIN, 0.7637 24.8 20.7
SUBCUT TISS &
BREAST PROC W/
O CC.
271............. SKIN ULCERS.... 0.8720 27.7 23.1
272............. MAJOR SKIN 0.7420 22.6 18.8
DISORDERS W CC.
273............. \1\ MAJOR SKIN 0.4499 19.0 15.8
DISORDERS W/O
CC.
274............. \3\ MALIGNANT 0.7637 24.8 20.7
BREAST
DISORDERS W CC.
275............. \7\ MALIGNANT 0.7637 24.8 20.7
BREAST
DISORDERS W/O
CC.
276............. \2\ NON- 0.5837 21.3 17.8
MALIGANT
BREAST
DISORDERS.
277............. CELLULITIS AGE 0.6264 21.0 17.5
>17 W CC.
278............. CELLULITIS AGE 0.4420 17.8 14.8
>17 W/O CC.
279............. \7\ CELLULITIS 0.4499 19.0 15.8
AGE 0-17.
280............. TRAUMA TO THE 0.6698 24.3 20.3
SKIN, SUBCUT
TISS & BREAST
AGE >17 W CC.
281............. \1\ TRAUMA TO 0.4499 19.0 15.8
THE SKIN,
SUBCUT TISS &
BREAST AGE >17
W/O CC.
282............. \7\ TRAUMA TO 0.4499 19.0 15.8
THE SKIN,
SUBCUT TISS &
BREAST AGE 0-
17.
283............. MINOR SKIN 0.6935 23.9 19.9
DISORDERS W CC.
284............. \1\ MINOR SKIN 0.4499 19.0 15.8
DISORDERS W/O
CC.
285............. AMPUTAT OF 1.3501 35.6 29.7
LOWER LIMB FOR
ENDOCRINE,NUTR
IT,& METABOL
DISORDERS.
286............. \7\ ADRENAL & 1.7034 38.5 32.1
PITUITARY
PROCEDURES.
287............. SKIN GRAFTS & 1.1387 33.9 28.3
WOUND DEBRID
FOR ENDOC,
NUTRIT & METAB
DISORDERS.
288............. \4\ O.R. 1.1820 29.6 24.7
PROCEDURES FOR
OBESITY.
289............. \7\ PARATHYROID 1.1820 29.6 24.7
PROCEDURES.
290............. \5\ THYROID 1.7034 38.5 32.1
PROCEDURES.
291............. \7\ 1.1820 29.6 24.7
THYROGLOSSAL
PROCEDURES.
292............. OTHER 1.3409 31.7 26.4
ENDOCRINE,
NUTRIT & METAB
O.R. PROC W CC.
293............. \2\ OTHER 0.5837 21.3 17.8
ENDOCRINE,
NUTRIT & METAB
O.R. PROC W/O
CC.
294............. DIABETES AGE >. 0.7293 25.0 20.8
295............. \3\ DIABETES 0.7637 24.8 20.7
AGE 0-35.
296............. NUTRITIONAL & 0.7212 23.1 19.3
MISC METABOLIC
DISORDERS AGE
>17 W CC.
297............. NUTRITIONAL & 0.5227 18.4 15.3
MISC METABOLIC
DISORDERS AGE
>17 W/O CC.
298............. \7\ NUTRITIONAL 0.5837 21.3 17.8
& MISC
METABOLIC
DISORDERS AGE
0-17.
299............. \4\ INBORN 1.1820 29.6 24.7
ERRORS OF
METABOLISM.
300............. ENDOCRINE 0.6376 21.2 17.7
DISORDERS W CC.
301............. \1\ ENDOCRINE 0.4499 19.0 15.8
DISORDERS W/O
CC.
302............. \6\ KIDNEY 0.0000 0.0 0.0
TRANSPLANT.
303............. \4\ 1.1820 29.6 24.7
KIDNEY,URETER
& MAJOR
BLADDER
PROCEDURES FOR
NEOPLASM.
304............. \5\ 1.7034 38.5 32.1
KIDNEY,URETER
& MAJOR
BLADDER PROC
FOR NON-NEOPL
W CC.
305............. \1\ 0.4499 19.0 15.8
KIDNEY,URETER
& MAJOR
BLADDER PROC
FOR NON-NEOPL
W/O CC.
306............. \2\ 0.5837 21.3 17.8
PROSTATECTOMY
W CC.
307............. \7\ 0.5837 21.3 17.8
PROSTATECTOMY
W/O CC.
308............. \3\ MINOR 0.7637 24.8 20.7
BLADDER
PROCEDURES W
CC.
309............. \7\ MINOR 0.7637 24.8 20.7
BLADDER
PROCEDURES W/O
CC.
310............. \4\ 1.1820 29.6 24.7
TRANSURETHRAL
PROCEDURES W
CC.
311............. \7\ 1.1820 29.6 24.7
TRANSURETHRAL
PROCEDURES W/O
CC.
312............. \1\ URETHRAL 0.4499 19.0 15.8
PROCEDURES,
AGE >17 W CC.
313............. \7\ URETHRAL 0.4499 19.0 15.8
PROCEDURES,
AGE >17 W/O CC.
314............. \7\ URETHRAL 0.4499 19.0 15.8
PROCEDURES,
AGE 0-17.
315............. OTHER KIDNEY & 1.4055 31.6 26.3
URINARY TRACT
O.R.
PROCEDURES.
316............. RENAL FAILURE.. 0.8219 22.7 18.9
317............. ADMIT FOR RENAL 0.9852 25.2 21.0
DIALYSIS.
318............. KIDNEY & 0.7586 20.2 16.8
URINARY TRACT
NEOPLASMS W CC.
319............. \1\ KIDNEY & 0.4499 19.0 15.8
URINARY TRACT
NEOPLASMS W/O
CC.
320............. KIDNEY & 0.6179 22.2 18.5
URINARY TRACT
INFECTIONS AGE
>17 W CC.
321............. KIDNEY & 0.4792 19.0 15.8
URINARY TRACT
INFECTIONS AGE
>17 W/O CC.
322............. \7\ KIDNEY & 0.4499 19.0 15.8
URINARY TRACT
INFECTIONS AGE
0-17.
323............. \4\ URINARY 1.1820 29.6 24.7
STONES W CC, &/
OR ESW
LITHOTRIPSY.
324............. \7\ URINARY 0.4499 19.0 15.8
STONES W/O CC.
325............. \2\ KIDNEY & 0.5837 21.3 17.8
URINARY TRACT
SIGNS &
SYMPTOMS AGE
>17 W CC.
326............. \7\ KIDNEY & 0.4499 19.0 15.8
URINARY TRACT
SIGNS &
SYMPTOMS AGE
>17 W/O CC.
327............. \7\ KIDNEY & 0.4499 19.0 15.8
URINARY TRACT
SIGNS &
SYMPTOMS AGE 0-
17.
328............. \1\ URETHRAL 0.4499 19.0 15.8
STRICTURE AGE
>17 W CC.

[[Page 27936]]

329............. \7\ URETHRAL 0.4499 19.0 15.8
STRICTURE AGE
>17 W/O CC.
330............. \7\ URETHRAL 0.4499 19.0 15.8
STRICTURE AGE
0-17.
331............. OTHER KIDNEY & 0.8010 23.1 19.3
URINARY TRACT
DIAGNOSES AGE
>17 W CC.
332............. \2\ OTHER 0.5837 21.3 17.8
KIDNEY &
URINARY TRACT
DIAGNOSES AGE
>17 W/O CC.
333............. \7\ OTHER 0.5837 21.3 17.8
KIDNEY &
URINARY TRACT
DIAGNOSES AGE
0-17.
334............. \2\ MAJOR MALE 0.5837 21.3 17.8
PELVIC
PROCEDURES W
CC.
335............. \7\ MAJOR MALE 1.7034 38.5 32.1
PELVIC
PROCEDURES W/O
CC.
336............. \2\ 0.5837 21.3 17.8
TRANSURETHRAL
PROSTATECTOMY
W CC.
337............. \7\ 0.5837 21.3 17.8
TRANSURETHRAL
PROSTATECTOMY
W/O CC.
338............. \7\ TESTES 0.5837 21.3 17.8
PROCEDURES,
FOR MALIGNANCY.
339............. \4\ TESTES 1.1820 29.6 24.7
PROCEDURES,
NON-MALIGNANCY
AGE >17.
340............. \7\ TESTES 1.1820 29.6 24.7
PROCEDURES,
NON-MALIGNANCY
AGE 0-17.
341............. \4\ PENIS 1.1820 29.6 24.7
PROCEDURES.
342............. \7\ 1.1820 29.6 24.7
CIRCUMCISION
AGE >17.
343............. \7\ 1.1820 29.6 24.7
CIRCUMCISION
AGE 0-17.
344............. \1\ OTHER MALE 0.4499 19.0 15.8
REPRODUCTIVE
SYSTEM O.R.
PROCEDURES FOR
MALIGNANCY.
345............. \5\ OTHER MALE 1.7034 38.5 32.1
REPRODUCTIVE
SYSTEM O.R.
PROC EXCEPT
FOR MALIGNANCY.
346............. MALIGNANCY, 0.6060 20.6 17.2
MALE
REPRODUCTIVE
SYSTEM, W CC.
347............. \2\ MALIGNANCY, 0.5837 21.3 17.8
MALE
REPRODUCTIVE
SYSTEM, W/O CC.
348............. \2\ BENIGN 0.5837 21.3 17.8
PROSTATIC
HYPERTROPHY W
CC.
349............. \7\ BENIGN 1.1820 29.6 24.7
PROSTATIC
HYPERTROPHY W/
O CC.
350............. INFLAMMATION OF 0.6798 21.9 18.3
THE MALE
REPRODUCTIVE
SYSTEM.
351............. \7\ 1.1820 29.6 24.7
STERILIZATION,
MALE.
352............. OTHER MALE 0.6375 23.4 19.5
REPRODUCTIVE
SYSTEM
DIAGNOSES.
353............. \7\ PELVIC 1.1820 29.6 24.7
EVISCERATION,
RADICAL
HYSTERECTOMY &
RADICAL
VULVECTOMY.
354............. \7\ 1.1820 29.6 24.7
UTERINE,ADNEXA
PROC FOR NON-
OVARIAN/
ADNEXAL MALIG
W CC.
355............. \7\ 1.1820 29.6 24.7
UTERINE,ADNEXA
PROC FOR NON-
OVARIAN/
ADNEXAL MALIG
W/O CC.
356............. \7\ FEMALE 1.1820 29.6 24.7
REPRODUCTIVE
SYSTEM
RECONSTRUCTIVE
PROCEDURES.
357............. \7\ UTERINE & 1.1820 29.6 24.7
ADNEXA PROC
FOR OVARIAN OR
ADNEXAL
MALIGNANCY.
358............. \7\ UTERINE & 1.1820 29.6 24.7
ADNEXA PROC
FOR NON-
MALIGNANCY W
CC.
359............. \7\ UTERINE & 1.1820 29.6 24.7
ADNEXA PROC
FOR NON-
MALIGNANCY W/O
CC.
360............. \4\ VAGINA, 1.1820 29.6 24.7
CERVIX & VULVA
PROCEDURES.
361............. \7\ LAPAROSCOPY 0.7637 24.8 20.7
& INCISIONAL
TUBAL
INTERRUPTION.
362............. \7\ ENDOSCOPIC 0.7637 24.8 20.7
TUBAL
INTERRUPTION.
363............. \7\ D&C, 0.7637 24.8 20.7
CONIZATION &
RADIO-IMPLANT,
FOR MALIGNANCY.
364............. \5\ D&C, 1.7034 38.5 32.1
CONIZATION
EXCEPT FOR
MALIGNANCY.
365............. \5\ OTHER 1.7034 38.5 32.1
FEMALE
REPRODUCTIVE
SYSTEM O.R.
PROCEDURES.
366............. MALIGNANCY, 0.7072 20.3 16.9
FEMALE
REPRODUCTIVE
SYSTEM W CC.
367............. \7\ MALIGNANCY, 0.7637 24.8 20.7
FEMALE
REPRODUCTIVE
SYSTEM W/O CC.
368............. INFECTIONS, 0.6416 20.7 17.3
FEMALE
REPRODUCTIVE
SYSTEM.
369............. \3\ MENSTRUAL & 0.7637 24.8 20.7
OTHER FEMALE
REPRODUCTIVE
SYSTEM
DISORDERS.
370............. \7\ CESAREAN 0.7637 24.8 20.7
SECTION W CC.
371............. \7\ CESAREAN 0.5837 21.3 17.8
SECTION W/O CC.
372............. \7\ VAGINAL 0.7637 24.8 20.7
DELIVERY W
COMPLICATING
DIAGNOSES.
373............. \7\ VAGINAL 0.7637 24.8 20.7
DELIVERY W/O
COMPLICATING
DIAGNOSES.
374............. \7\ VAGINAL 0.7637 24.8 20.7
DELIVERY W
STERILIZATION
&/OR D&C.
375............. \7\ VAGINAL 0.7637 24.8 20.7
DELIVERY W
O.R. PROC
EXCEPT STERIL
&/OR D&C.
376............. \7\ POSTPARTUM 0.7637 24.8 20.7
& POST
ABORTION
DIAGNOSES W/O
O.R. PROCEDURE.
377............. \7\ POSTPARTUM 0.7637 24.8 20.7
& POST
ABORTION
DIAGNOSES W
O.R. PROCEDURE.
378............. \7\ ECTOPIC 0.7637 24.8 20.7
PREGNANCY.
379............. \7\ THREATENED 0.7637 24.8 20.7
ABORTION.
380............. \7\ ABORTION W/ 0.7637 24.8 20.7
O D&C.
381............. \7\ ABORTION W 0.7637 24.8 20.7
D&C,
ASPIRATION
CURETTAGE OR
HYSTEROTOMY.
382............. \7\ FALSE LABOR 0.7637 24.8 20.7
383............. \7\ OTHER 0.7637 24.8 20.7
ANTEPARTUM
DIAGNOSES W
MEDICAL
COMPLICATIONS.
384............. \7\ OTHER 0.7636 24.8 20.7
ANTEPARTUM
DIAGNOSES W/O
MEDICAL
COMPLICATIONS.
385............. \7\ NEONATES, 0.7636 24.8 20.7
DIED OR
TRANSFERRED TO
ANOTHER ACUTE
CARE FACILITY.
386............. \7\ EXTREME 1.1820 29.6 24.7
IMMATURITY.
387............. \7\ PREMATURITY 1.1820 29.6 24.7
W MAJOR
PROBLEMS.
388............. \7\ PREMATURITY 0.7637 24.8 20.7
W/O MAJOR
PROBLEMS.
389............. \7\ FULL TERM 1.1820 29.6 24.7
NEONATE W
MAJOR PROBLEMS.
390............. \7\ NEONATE W 1.1820 29.6 24.7
OTHER
SIGNIFICANT
PROBLEMS.
391............. \7\ NORMAL 0.7637 24.8 20.7
NEWBORN.

[[Page 27937]]

392............. \7\ SPLENECTOMY 0.7637 24.8 20.7
AGE >17.
393............. \7\ SPLENECTOMY 0.7637 24.8 20.7
AGE 0-17.
394............. \5\ OTHER O.R. 1.7034 38.5 32.1
PROCEDURES OF
THE BLOOD AND
BLOOD FORMING
ORGANS.
395............. RED BLOOD CELL 0.6581 22.0 18.3
DISORDERS AGE
>17.
396............. \7\ RED BLOOD 0.5837 21.3 17.8
CELL DISORDERS
AGE 0-17.
397............. COAGULATION 0.8675 22.9 19.1
DISORDERS.
398............. RETICULOENDOTHE 0.8240 23.7 19.8
LIAL &
IMMUNITY
DISORDERS W CC.
399............. \2\ 0.5837 21.3 17.8
RETICULOENDOTH
ELIAL &
IMMUNITY
DISORDERS W/O
CC.
401............. \5\ LYMPHOMA & 1.7034 38.5 32.1
NON-ACUTE
LEUKEMIA W
OTHER O.R.
PROC W CC.
402............. \7\ LYMPHOMA & 0.5837 21.3 17.8
NON-ACUTE
LEUKEMIA W
OTHER O.R.
PROC W/O CC.
403............. LYMPHOMA & NON- 0.8757 21.3 17.8
ACUTE LEUKEMIA
W CC.
404............. \2\ LYMPHOMA & 0.5837 21.3 17.8
NON-ACUTE
LEUKEMIA W/O
CC.
405............. \7\ ACUTE 0.5837 21.3 17.8
LEUKEMIA W/O
MAJOR O.R.
PROCEDURE AGE
0-17.
406............. \4\ MYELOPROLIF 1.1820 29.6 24.7
DISORD OR
POORLY DIFF
NEOPL W MAJ
O.R.PROC W CC.
407............. \7\ MYELOPROLIF 1.1820 29.6 24.7
DISORD OR
POORLY DIFF
NEOPL W MAJ
O.R.PROC W/O
CC.
408............. \4\ MYELOPROLIF 1.1820 29.6 24.7
DISORD OR
POORLY DIFF
NEOPL W OTHER
O.R.PROC.
409............. RADIOTHERAPY... 0.8642 23.5 19.6
410............. CHEMOTHERAPY W/ 1.1684 26.4 22.0
O ACUTE
LEUKEMIA AS
SECONDARY
DIAGNOSIS.
411............. \7\ HISTORY OF 0.7637 24.8 20.7
MALIGNANCY W/O
ENDOSCOPY.
412............. \7\ HISTORY OF 0.7637 24.8 20.7
MALIGNANCY W
ENDOSCOPY.
413............. OTHER 0.8920 20.5 17.1
MYELOPROLIF
DIS OR POORLY
DIFF NEOPL
DIAG W CC.
414............. \7\ OTHER 0.5837 21.3 17.8
MYELOPROLIF
DIS OR POORLY
DIFF NEOPL
DIAG W/O CC.
415............. O.R. PROCEDURE 1.4251 35.6 29.7
FOR INFECTIOUS
& PARASITIC
DISEASES.
416............. SEPTICEMIA AGE 0.8241 23.5 19.6
>17.
417............. \7\ SEPTICEMIA 0.7637 24.8 20.7
AGE 0-17.
418............. POSTOPERATIVE & 0.8252 24.7 20.6
POST-TRAUMATIC
INFECTIONS.
419............. \4\ FEVER OF 1.1820 29.6 24.7
UNKNOWN ORIGIN
AGE >17 W CC.
420............. \7\ FEVER OF 1.1820 29.6 24.7
UNKNOWN ORIGIN
AGE >17 W/O CC.
421............. VIRAL ILLNESS 0.9441 27.3 22.8
AGE >17.
422............. \7\ VIRAL 0.4499 19.0 24.7
ILLNESS &
FEVER OF
UNKNOWN ORIGIN
AGE 0-17.
423............. OTHER 0.9505 21.8 18.2
INFECTIOUS &
PARASITIC
DISEASES
DIAGNOSES.
424............. \3\ O.R. 0.7637 24.8 20.7
PROCEDURE W
PRINCIPAL
DIAGNOSES OF
MENTAL ILLNESS.
425............. \2\ ACUTE 0.5837 21.3 17.8
ADJUSTMENT
REACTION &
PSYCHOLOGICAL
DYSFUNCTION.
426............. DEPRESSIVE 0.4113 20.7 17.3
NEUROSES.
427............. NEUROSES EXCEPT 0.4653 23.8 19.8
DEPRESSIVE.
428............. \1\ DISORDERS 0.4499 19.0 15.8
OF PERSONALITY
& IMPULSE
CONTROL.
429............. ORGANIC 0.5813 26.8 22.3
DISTURBANCES &
MENTAL
RETARDATION.
430............. PSYCHOSES...... 0.4330 24.2 20.2
431............. \1\ CHILDHOOD 0.4499 19.0 15.8
MENTAL
DISORDERS.
432............. \2\ OTHER 0.5837 21.3 17.8
MENTAL
DISORDER
DIAGNOSES.
433............. \2\ ALCOHOL/ 0.5837 21.3 17.8
DRUG ABUSE OR
DEPENDENCE,
LEFT AMA.
439............. SKIN GRAFTS FOR 1.3677 35.6 29.7
INJURIES.
440............. WOUND 1.3442 36.1 30.1
DEBRIDEMENTS
FOR INJURIES.
441............. \1\ HAND 0.4499 19.0 15.8
PROCEDURES FOR
INJURIES.
442............. OTHER O.R. 1.3937 33.4 27.8
PROCEDURES FOR
INJURIES W CC.
443............. \3\ OTHER O.R. 0.7637 24.8 20.7
PROCEDURES FOR
INJURIES W/O
CC.
444............. TRAUMATIC 0.7584 26.3 21.9
INJURY AGE >17
W CC.
445............. \1\ TRAUMATIC 0.4499 19.0 15.8
INJURY AGE >17
W/O CC9.
446............. \7\ TRAUMATIC 0.4499 19.0 15.8
INJURY AGE 0-
17.
447............. \2\ ALLERGIC 0.5837 21.3 17.8
REACTIONS AGE
>17.
448............. \7\ ALLERGIC 0.5837 21.3 17.8
REACTIONS AGE
0-17.
449............. \3\ POISONING & 0.7637 24.8 20.7
TOXIC EFFECTS
OF DRUGS AGE
>17 W CC.
450............. \7\ POISONING & 0.7637 24.8 20.7
TOXIC EFFECTS
OF DRUGS AGE
>17 W/O CC.
451............. \7\ POISONING & 0.7637 24.8 20.7
TOXIC EFFECTS
OF DRUGS AGE 0-
17 7.
452............. COMPLICATIONS 0.9265 25.3 21.1
OF TREATMENT W
CC.
453............. COMPLICATIONS 0.5871 23.8 19.8
OF TREATMENT W/
O CC.
454............. \3\ OTHER 0.7637 24.8 20.7
INJURY,
POISONING &
TOXIC EFFECT
DIAG W CC.
455............. \7\ OTHER 0.7637 24.8 20.7
INJURY,
POISONING &
TOXIC EFFECT
DIAG W/O CC.
461............. O.R. PROC W 1.2245 34.0 28.3
DIAGNOSES OF
OTHER CONTACT
W HEALTH
SERVICES.
462............. REHABILITATION. 0.5787 22.4 18.7
463............. SIGNS & 0.6258 23.8 19.8
SYMPTOMS W CC.
464............. SIGNS & 0.5554 24.1 20.1
SYMPTOMS W/O
CC.
465............. AFTERCARE W 0.6958 21.9 18.3
HISTORY OF
MALIGNANCY AS
SECONDARY
DIAGNOSIS.
466............. AFTERCARE W/O 0.6667 21.9 18.3
HISTORY OF
MALIGNANCY AS
SECONDARY
DIAGNOSIS.
467............. \3\ OTHER 0.7637 24.8 20.7
FACTORS
INFLUENCING
HEALTH STATUS.
468............. EXTENSIVE O.R. 2.1478 40.2 33.5
PROCEDURE
UNRELATED TO
PRINCIPAL
DIAGNOSIS.

[[Page 27938]]

469............. \6\ PRINCIPAL 0.0000 0.0 0.0
DIAGNOSIS
INVALID AS
DISCHARGE
DIAGNOSIS.
470............. \6\ UNGROUPABLE 0.0000 0.0 0.0
471............. \5\ BILATERAL 1.7034 38.5 32.1
OR MULTIPLE
MAJOR JOINT
PROCS OF LOWER
EXTREMITY.
473............. ACUTE LEUKEMIA 0.8537 20.0 16.7
W/O MAJOR O.R.
PROCEDURE AGE
>17.
475............. RESPIRATORY 2.0831 34.6 28.8
SYSTEM
DIAGNOSIS WITH
VENTILATOR
SUPPORT.
476............. \4\ PROSTATIC 1.1820 29.6 24.7
O.R. PROCEDURE
UNRELATED TO
PRINCIPAL
DIAGNOSIS.
477............. NON-EXTENSIVE 1.5836 35.3 29.4
O.R. PROCEDURE
UNRELATED TO
PRINCIPAL
DIAGNOSIS.
479............. \7\ OTHER 0.7637 24.8 20.7
VASCULAR
PROCEDURES W/O
CC.
480............. \6\ LIVER 0.0000 0.0 0.0
TRANSPLANT.
481............. \7\ BONE MARROW 1.7034 38.5 32.1
TRANSPLANT.
482............. \5\ 1.7034 38.5 32.1
TRACHEOSTOMY
FOR FACE,MOUTH
& NECK
DIAGNOSES.
484............. \2\ CRANIOTOMY 0.5837 21.3 17.8
FOR MULTIPLE
SIGNIFICANT
TRAUMA.
485............. \7\ LIMB 1.1820 29.6 24.7
REATTACHMENT,
HIP AND FEMUR
PROC FOR
MULTIPLE
SIGNIFICANT TR.
486............. \5\ OTHER O.R. 1.7034 38.5 32.1
PROCEDURES FOR
MULTIPLE
SIGNIFICANT
TRAUMA.
487............. OTHER MULTIPLE 0.8992 26.0 21.7
SIGNIFICANT
TRAUMA.
488............. \5\ HIV W 1.7034 38.5 32.1
EXTENSIVE
O.R.PROCEDURE.
489............. HIV W MAJOR 0.8535 21.4 17.8
RELATED
CONDITION.
490............. HIV W OR W/O 0.4919 16.6 13.8
OTHER RELATED
CONDITION.
491............. \5\ MAJOR JOINT 1.7034 38.5 32.1
& LIMB
REATTACHMENT
PROCEDURES OF
UPPER
EXTREMITY.
492............. \7\ 1.1820 29.6 24.7
CHEMOTHERAPY W
ACUTE LEUKEMIA
AS SECONDARY
DIAGNOSIS.
493............. \5\ 1.7034 38.5 32.1
LAPAROSCOPIC
CHOLECYSTECTOM
Y W/O C.D.E. W
CC.
494............. \7\ 1.7034 38.5 32.1
LAPAROSCOPIC
CHOLECYSTECTOM
Y W/O C.D.E. W/
O CC.
495............. \6\ LUNG 0.0000 0.0 0.0
TRANSPLANT.
496............. \7\ COMBINED 1.1820 29.6 24.7
ANTERIOR/
POSTERIOR
SPINAL FUSION.
497............. \4\ SPINAL 1.1820 29.6 24.7
FUSION W CC.
498............. \7\ SPINAL 1.1820 29.6 24.7
FUSION W/O CC.
499............. \5\ BACK & NECK 1.7034 38.5 32.1
PROCEDURES
EXCEPT SPINAL
FUSION W CC.
500............. \4\ BACK & NECK 1.1820 29.6 24.7
PROCEDURES
EXCEPT SPINAL
FUSION W/O CC.
501............. \5\ KNEE 1.7034 38.5 32.1
PROCEDURES W
PDX OF
INFECTION W CC.
502............. \4\ KNEE 1.1820 29.6 24.7
PROCEDURES W
PDX OF
INFECTION W/O
CC.
503............. \2\ KNEE 0.5837 21.3 17.8
PROCEDURES W/O
PDX OF
INFECTION.
504............. \7\ EXTENSIVE 1.7034 38.5 32.1
BURN OR FULL
THICKNESS
BURNS WITH
MECH VENT 96+
HOURS WITH
SKIN GRAFT.
505............. \4\ EXTENSIVE 1.1820 29.6 24.7
BURN OR FULL
THICKNESS
BURNS WITH
MECH VENT 96+
HOURS WITHOUT
SKIN GRAFT.
506............. \4\ FULL 1.1820 29.6 24.7
THICKNESS BURN
W SKIN GRAFT
OR INHAL INJ W
CC OR SIG
TRAUMA.
507............. \3\ FULL 0.7637 24.8 20.7
THICKNESS BURN
W SKIN GRFT OR
INHAL INJ W/O
CC OR SIG
TRAUMA.
508............. FULL THICKNESS 0.8367 29.4 24.5
BURN W/O SKIN
GRFT OR INHAL
INJ W CC OR
SIG TRAUMA.
509............. \1\ FULL 0.4499 19.0 15.8
THICKNESS BURN
W/O SKIN GRFT
OR INH INJ W/O
CC OR SIG
TRAUMA.
510............. NON-EXTENSIVE 0.7709 24.6 20.5
BURNS W CC OR
SIGNIFICANT
TRAUMA.
511............. \1\ NON- 0.4499 19.0 15.8
EXTENSIVE
BURNS W/O CC
OR SIGNIFICANT
TRAUMA.
512............. \6\ 0.0000 0.0 0.0
SIMULTANEOUS
PANCREAS/
KIDNEY
TRANSPLANT.
513............. \6\ PANCREAS 0.0000 0.0 0.0
TRANSPLANT.
515............. \5\ CARDIAC 1.7034 38.5 32.1
DEFIBRILATOR
IMPLANT W/O
CARDIAC CATH.
518............. \7\ 0.7637 24.8 20.7
PERCUTANEOUS
CARDIVASCULAR
PROC W/O
CORONARY
ARTERY STENT
OR AMI.
519............. \5\ CERVICAL 1.7034 38.5 32.1
SPINAL FUSION
W CC.
520............. \7\ CERVICAL 1.1820 29.6 24.7
SPINAL FUSION
W/O CC.
521............. ALCOHOL/DRUG 0.4457 19.4 16.2
ABUSE OR
DEPENDENCE W
CC.
522............. \7\ ALCOHOL/ 0.4499 19.0 15.8
DRUG ABUSE OR
DEPENDENCE W
REHABILITATION
THERAPY W/O CC.
523............. \7\ ALCOHOL/ 0.4499 19.0 15.8
DRUG ABUSE OR
DEPENDENCE W/O
REHABILITATION
THERAPY W/O CC.
524............. TRANSIENT 0.5043 21.1 17.6
ISCHEMIA.
525............. \7\ OTHER HEART 1.7034 38.5 32.1
ASSIST SYSTEM
IMPLANT.
528............. \7\ 1.7034 38.5 32.1
INTRACRANIAL
VASCULAR PROC
W PDX
HEMORRHAGE.
529............. \5\ VENTRICULAR 1.7034 38.5 32.1
SHUNT
PROCEDURES W
CC.
530............. \7\ VENTRICULAR 1.7034 38.5 32.1
SHUNT
PROCEDURES W/O
CC.
531............. \3\ SPINAL 0.7637 24.8 20.7
PROCEDURES
WITH CC.
532............. \3\ SPINAL 0.7637 24.8 20.7
PROCEDURES
WITHOUT CC.

[[Page 27939]]

533............. \5\ 1.7034 38.5 32.1
EXTRACRANIAL
VASCULAR
PROCEDURES
WITH CC.
534............. \7\ 1.1820 29.6 24.7
EXTRACRANIAL
VASCULAR
PROCEDURES
WITHOUT CC.
535............. \7\ CARDIAC 1.7034 38.5 32.1
DEFIB IMPLANT
W CARDIAC CATH
W AMI/HF/SHOCK.
536............. \7\ CARDIAC 1.7034 38.5 32.1
DEFIB IMPLANT
W CARDIAC CATH
W/O AMI/HF/
SHOCK.
537............. LOCAL EXCISION 1.1615 34.7 28.9
AND REMOVAL OF
INTERNAL
FIXATION
DEVICES EXCEPT
HIP AND FEMUR
WITH CC.
538............. \7\ LOCAL 1.1820 29.6 24.7
EXCISION AND
REMOVAL OF
INTERNAL
FIXATION
DEVICES EXCEPT
HIP AND FEMUR
WITHOUT CC.
539............. \4\ LYMPHOMA 1.1820 29.6 24.7
AND LEUKEMIA
WITH MAJOR
O.R. PROCEDURE
WITH CC.
540............. \7\ LYMPHOMA 0.5837 21.3 17.8
AND LEUKEMIA
WITH MAJOR
O.R. PROCEDURE
WITHOUT CC.
541............. ECMO OR TRACH W 4.2287 65.6 54.7
MECH VENT 96+
HRS OR PDX
EXCEPT
FACE,MOUTH &
NECK DIAG WITH
MAJOR OR.
542............. TRACH W MECH 3.1869 48.2 40.2
VENT 96+ HRS
OR PDX EXCEPT
FACE,MOUTH &
NECK DIAG
WITHOUT MAJOR
OR.
543............. CRANIOTOMY W 1.7034 38.5 32.1
IMPLANT OF
CHEMO AGENT OR
ACUTE COMPLEX
CNS PDX.
544............. \5\ MAJOR JOINT 1.7034 38.5 32.1
REPLACEMENT OR
REATTACHMENT
OF LOWER
EXTREMITY.
545............. \5\ REVISION OF 1.7034 38.5 32.1
HIP OR KNEE
REPLACEMENT.
546............. \7\ SPINAL 1.7034 38.5 32.1
FUSION EXCEPT
CERVICAL WITH
CURVATURE OF
SPINE OR
MALIGNANCY.
547............. \7\ CORONARY 1.7034 38.5 32.1
BYPASS WITH
CARDIAC CATH
WITH MAJOR CV
DIAGNOSIS.
548............. \7\ CORONARY 1.7034 38.5 32.1
BYPASS WITH
CARDIAC CATH
WITHOUT MAJOR
CV DIAGNOSIS.
549............. \7\ CORONARY 1.7034 38.5 32.1
BYPASS WITHOUT
CARDIAC CATH
WITH MAJOR CV
DIAGNOSIS.
550............. \7\ CORONARY 1.7034 38.5 32.1
BYPASS WITHOUT
CARDIAC CATH
WITHOUT MAJOR
CV DIAGNOSIS.
551............. \4\ PERMANENT 1.1820 29.6 24.7
CARDIAC
PACEMAKER
IMPLANT WITH
MAJOR CV
DIAGNOSIS OR
AICD LEAD OR
GNRTR.
552............. \4\ OTHER 1.1820 29.6 24.7
PERMANENT
CARDIAC
PACEMAKER
IMPLANT
WITHOUT MAJOR
CV DIAGNOSIS.
553............. \8\ OTHER 1.3255 30.6 25.5
VASCULAR
PROCEDURES
WITH CC WITH
MAJOR CV
DIAGNOSIS.
554............. \8\ OTHER 1.3255 30.6 25.5
VASCULAR
PROCEDURES
WITH CC
WITHOUT MAJOR
CV DIAGNOSIS.
555............. \4\ 1.1820 29.6 24.7
PERCUTANEOUS
CARDIOVASCULAR
PROC WITH
MAJOR CV
DIAGNOSIS.
556............. \8\ 1.1820 29.6 24.7
PERCUTANEOUS
CARDIOVASCULAR
PROC WITH NON-
DRUG-ELUTING
STENT WITHOUT
MAJOR CV
DIAGNOSISPROC
WITH NON-DRUG-
ELUTING STENT
WITHOUT MAJOR
CV DIAGNOSIS.
557............. \8\ 1.1820 29.6 24.7
PERCUTANEOUS
CARDIOVASCULAR
PROC WITH DRUG-
ELUTING STENT
WITH MAJOR CV
DIAGNOSIS.
558............. \7\ 1.1820 29.6 24.7
PERCUTANEOUS
CARDIOVASCULAR
PROC WITH DRUG-
ELUTING STENT
WITHOUT MAJOR
CV DIAGNOSIS.
559............. \7\ ACUTE 0.7637 24.8 20.7
ISCHEMIC
STROKE WITH
USE OF
THROMBOLYTIC
AGENT.
------------------------------------------------------------------------
\1\ Relative weights for these LTC-DRGs were determined by assigning
these cases to low-volume quintile 1.
\2\ Relative weights for these LTC-DRGs were determined by assigning
these cases to low-volume quintile 2.
\3\ Relative weights for these LTC-DRGs were determined by assigning
these cases to low-volume quintile 3.
\4\ Relative weights for these LTC-DRGs were determined by assigning
these cases to low-volume quintile 4.
\5\ Relative weights for these LTC-DRGs were determined by assigning
these cases to low-volume quintile 5.
\6\ Relative weights for these LTC-DRGs were assigned a value of 0.0000.

\7\ Relative weights for these LTC-DRGs were determined by assigning
these cases to the appropriate low volume quintile because there are
no LTCH cases in the FY 2004 MedPAR file.
\8\ Relative weights for these LTC-DRGs were determined after adjusting
to account for nonmonotonicity.

[FR Doc. 06-4240 Filed 5-2-06; 3:45 pm]
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